ELCA LEADERS ELCA ORGANIZATIONS PORTICO BENEFIT SERVICES STRENGTHENING MINISTRY TOGETHER 2015 ANNUAL REPORT

Transcription

1 ELCA LEADERS ELCA ORGANIZATIONS PORTICO BENEFIT SERVICES STRENGTHENING MINISTRY TOGETHER 2015 ANNUAL REPORT

2 About Our Plans The ELCA Pension and Other Benefits Program provides health, flexible spending, retirement, disability and survivor benefits presented as one comprehensive program to members. Benefit plans are governed and administered individually through separate plan documents. The Board of Pensions of The Evangelical Lutheran Church in America, doing business as Portico Benefit Services, maintains the following plans: ELCA Retirement Plan, ELCA Disability Benefits Plan, ELCA Survivor Benefits Plan, ELCA Medical and Dental Benefits Plan (which includes the ELCA post-retirement medical benefits obligation) and ELCA Flexible Benefits Plan. We also maintain three group retirement plans for ELCAaffiliated social ministry organizations the ELCA Master Institutional Retirement Plan, the ELCA Retirement Plan for The Evangelical Lutheran Good Samaritan Society and the ELCA 457(b) Deferred Compensation Plan. The assets of each plan are held in various trusts and therefore do not allow one plan to fund a shortfall of another plan. The plans are church plans, as defined in section 414(e) of the Internal Revenue Code and are not subject to the Employee Retirement Income Security Act (ERISA). The health and disability plans are self-insured and are not protected through any type of insurance program. Our ability to pay claims is dependent on continued contributions and market performance. The basic, supplemental, and dependent life insurance benefits are offered by Securian Life Insurance Company. Product guarantees are backed by the financial strength and claim paying ability of Securian Life Insurance Company. Premiums are not guaranteed to remain unchanged. Portico Benefit Services does not assume any responsibility or liability for the obligations of Securian Life Insurance Company under the insurance policies. Portico Benefit Services is not affiliated with Securian Life Insurance Company. We reserve the right to change any of the terms of the plans at any time through the amendment or termination process described in each plan s summary plan description. About Our Funds You should carefully consider the target asset allocations, investment objectives, risks, charges and expenses of any fund before investing in it. All funds, including ELCA funds, are subject to risk and uncertainties. Past performance is no guarantee of future performance. Funds managed by Portico Benefit Services, including the ELCA Participating Annuity Investment Fund, are not insured or guaranteed by the Federal Deposit Insurance Corporation, any other government agency, or the ELCA. Losses or underperformance in the markets could cause a reduction in monthly participating annuity payments. Fund assets are invested in multiple sectors of the market. Some sectors, as well as the funds, may perform below expectations and lose money over short or extended periods. See the ELCA Investment Fund Descriptions and the Investment Memorandum for the ELCA Participating Annuity Trust for more information about our funds. Neither Portico Benefit Services nor the ELCA funds are subject to registration, regulation or reporting under the Investment Company Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Advisers Act of 1940 or state securities laws. Members, therefore, will not be afforded the protections of the provisions of those laws and related regulations. On the Cover Portico Benefit Services Meet Portico s Financial Education Specialist, Grace Duddy Pomroy, in the act of presenting one of Portico s online financial education webinars introduced in As an up-and-coming financial thought-leader, Grace is also the published author of two congregational stewardship resources. ELCA Organizations Bishop Mary Froiland of the South-Central Synod of Wisconsin and Portico Regional Representative Jennifer Prinz took this selfie after the bishop introduced Jennifer as the keynote speaker as the synod s LEAD event. Jennifer s topic: Whole-person Stewardship and the Wholeness Wheel. ELCA Leaders During a visit to St. Peter Luteran Church in Santa Ana, California, Regional Rep Andrea Arey noticed Pastor Wesley Menke s makeshift standing desk. She snapped a photo of this healthy leader who now stands for most of his workday.

3 Contents Letter from the Chairperson and President 2 Being Good Stewards in Unsteady Times 3 Report of Management 6 Highlights 7 Statements of Net Assets 10 Statements of Changes in Net Assets 14 Notes to Financial Statements 18 Plan Activity by Fund 54 Independent Auditor s Report 58 Trustees and Leadership Team 59

4 Letter from the Chairperson and President Dear Partners in Ministry, It s an interesting and challenging time to be the church. Ministry leaders are learning to navigate the changing culture by holding on to the best of the past while finding ways to be creative, nimble, and resilient going into the future. This is just as true for Portico. Gregory W. Heidrich (Chairperson) As we navigate the changing landscape, we affirm that stewardship remains one of our core values. For us, that means serving with excellence while caring wisely for all we are entrusted to manage time, money, our employees, and the well-being of those we serve so leaders can access important benefits and resources, today and in retirement. We spend and invest with care. In these times of rising health care costs and tight church budgets, we work hard to operate within a lean, carefully managed spending plan with a goal of keeping costs low. As 2015 investment markets dramatically rose and fell, our active investment management strategy and strategic asset allocations helped improve retirement fund returns in an otherwise disappointing year. The Rev. Jeffrey D. Thiemann (President and CEO) We seek out opportunities to contain health care costs. The past two years brought, in some instances, double-digit percentage increases for those employers sponsoring members in the ELCA health benefit program. Although this was in line with nationwide averages, we realize for congregations it is an unsustainable trend. We are committed to keeping administrative expenses below 12% of our health care budget, and are aggressively working with our vendor partners to find savings opportunities. For example, in 2015 we renegotiated our contract with Express Scripts, our pharmacy benefit administrator, and switched to a different network provider in Wisconsin, and anticipate these actions will bring meaningful savings in We tap technology to reach our leaders more efficiently. By converting our popular pre-retirement seminar into a series of three webinars, we were able to complement the rich educational experience of our in-person seminars with the convenience and cost-effectiveness of online learning. In fall 2015 we were able to reach more than 1,200 members via webinar for less than 10% of the cost of an in-person seminar. We are also developing new webinars designed to help younger leaders establish a strong financial foundation. Portico is committed to providing a high quality, cost-effective, comprehensive benefit program that helps our church s leaders stay nimble, resilient, and confident in these interesting, challenging times. In Christ, Gregory Heidrich Chair, Portico Board of Trustees The Rev. Jeffrey Thiemann President and CEO 2

5 混乱 (confusion and disorder) Being Good Stewards in Unsteady Times It s easy to demonstrate good stewardship during calm economic times, but 2015 was a robust stress test for investors. An unfamiliar mix of economic conditions led to confusion and disorder in the global financial markets, especially during the second half of the year. China s economic growth slowed, the price of oil plunged, and the Federal Reserve raised interest rates just as interest rates in other parts of the world reached new lows. In the context of unsteady market conditions: U.S. stock and investment grade bond prices rose and fell dramatically, ending 2015 with unremarkable returns of 0.5% each. Curtis G. Fee (Vice President and CIO) Non-U.S. stock returns were -4.6% for the year, driven down by double digit losses in emerging markets and steep declines in the value of many non-u.s. currencies. The overall high yield bond market returned less than -5.0% for the year due to perceived economic and credit risks. Even conservative Treasury Inflation Protected Securities produced losses in 2015 as declining energy and commodity prices reduced inflation expectations. Despite market challenges, I m pleased to report that Portico s investment program was able to deliver value to members in While some of our active investment managers struggled during the most volatile months, as a group they exceeded market returns for the year. In addition, our allocations to alternative investments such as private equity and real estate produced returns well above those of stocks and bonds. The impact of these decisions and others led to improved returns for our members and a 1.4% increase in 2016 ELCA Participating Annuity payments for annuitants. 1 We also enhanced opportunities for global stewardship in 2015 by strengthening our ability to invest for social impact. 1 Positive Investing: We have begun adding carefully chosen Social Impact First investments to the ELCA social purpose funds. Learn more at PorticoBenefits.org/impact. Shareholder Advocacy: By filing shareholder resolutions with corporations, we addressed greenhouse gas emissions, hydraulic fracturing environmental impact, water risks, energy productivity, human trafficking, diversity, and sustainability reporting among other topics valued by investors. Screening: We approved our use of the new ELCA Private Prison screen to exclude from future investments private for-profit prisons. We also approved our use of the ELCA s revised Environment screen to exclude companies owning thermal coal reserves. We are proud of the many ways we steward member savings throughout the year, and we are grateful for the opportunity to serve you and the ELCA. Blessings, Curtis G. Fee Vice President and Chief Investment Officer 1 Please refer to the more detailed information contained in this Annual Report, particularly ELCA Retirement Plan performance (as of Dec. 31, 2015) (unaudited) and the accompanying notes. 3

6 ELCA RETIREMENT PLAN PERFORMANCE (AS OF DEC. 31, 2015) Select Series 1 1 Year (%) 3 Year (%) 5 Year (%) 10 Year (%) ELCA 80e Balanced Fund ELCA Social Purpose 80e Balanced Fund Median: Lipper Peer Group Mixed-Asset Target Allocation Growth Funds ELCA 60e Balanced Fund 2 ELCA Social Purpose 60e Balanced Fund 2 Median: Lipper Peer Group Mixed-Asset Target Allocation Growth Funds Median: Lipper Peer Group Mixed-Asset Target Allocation Moderate Funds ELCA 40e Balanced Fund 2 ELCA Social Purpose 40e Balanced Fund 2 Median: Lipper Peer Group Mixed-Asset Target Allocation Moderate Funds Median: Lipper Peer Group Mixed-Asset Target Allocation Conservative Funds Build-Your-Own Series 1 1 Year (%) 3 Year (%) 5 Year (%) 10 Year (%) ELCA Global Stock Fund ELCA Social Purpose Global Stock Fund Median: Lipper Peer Group Global Multi-Cap Core Funds ELCA Non-U.S. Stock Fund ELCA Social Purpose Non-U.S. Stock Fund Median: Lipper Peer Group International Multi-Cap Core Funds ELCA U.S. Stock Fund ELCA Social Purpose U.S. Stock Fund Median: Lipper Peer Group Multi-Cap Core Funds ELCA S&P 500 Stock Index Fund 3 Median: Lipper Peer Group S&P 500 Index Objective Funds ELCA Social Purpose Stock Index Fund 4 Russell 3000 Stock Index ELCA Small- and Mid-Cap Stock Index Fund 4 Dow Jones U.S. Completion Total Stock Market Index ELCA Global Real Estate Securities Fund 5 Median: Lipper Peer Group Global Real Estate Funds ELCA High-Yield Bond Fund Median: Lipper Peer Group High Yield Funds ELCA Bond Fund ELCA Social Purpose Bond Fund Median: Lipper Peer Group Intermediate Investment-Grade Debt Funds ELCA Money Market Fund 6 Median: Lipper Peer Group Money Market Instrument Funds

7 1. Returns are net of fees, and are annualized for periods greater than one year. An investment in these funds could lose money over short or long periods of time. Past performance does not guarantee future results. 2. Because the target equity allocation for this fund does not fall within the available Lipper fund classifications, two Lipper fund classification comparisons are shown. The target equity allocation of this fund falls at the high end of the equity allocation of one of the Lipper classifications and falls at the low end of the equity allocation of the other Lipper classification. 3. S&P 500 is a trademark of the McGraw-Hill Companies, Inc., and has been licensed for use by the Portico Benefit Services. The ELCA S&P 500 Stock Index Fund is not sponsored, endorsed, sold or promoted by Standard & Poor s, and Standard & Poor s makes no representation regarding the advisability of investing in the fund. 4. The Stock Index benchmark for this fund is gross of fees, unlike Lipper Peer Group information available for other ELCA funds which are net of all fees. 5. This asset class was managed as a 100% U.S. real estate securities pool prior to December 2008 at which time it was expanded to include non-u.s. real estate securities. The Lipper peer group shown with this fund includes mutual funds which owned both U.S. and non-u.s. real estate securities for all time periods shown. 6. The Money Market Fund has experienced a negative net return (loss) that is likely to continue in a low interest rate environment. Although the fund seeks to preserve value at $1 in low interest rate environments, there is a risk that the return on the Money Market Fund, after investment management fees, can be less than the administrative expenses charged by Portico Benefit Services, resulting in negative net return (or loss) for plan members. About the Select Series funds: The trademarks listed below and contained in this publication are owned, controlled or licensed by or to Portico Benefit Services, and are protected by U.S. trademark and unfair competition laws. All rights are reserved. ELCA 40e Balanced Fund (40e Balanced Fund) ELCA Social Purpose 40e Balanced Fund (Social Purpose 40e Balanced Fund) ELCA 60e Balanced Fund (60e Balanced Fund) ELCA Social Purpose 60e Balance Fund (Social Purpose 60e Balanced Fund) ELCA 80e Balanced Fund (80e Balanced Fund) ELCA Social Purpose 80e Balance Fund (Social Purpose 80e Balanced Fund) About Lipper comparison funds: As of Dec. 31, 2012, Portico Benefit Services began using Lipper fund classification comparisons, rather than custom benchmarks. This comparison uses the median (middle) return of mutual funds classified by Lipper and excludes the I institutional share class. These comparisons use fund classifications with similar investment mandates to the ELCA funds. Lipper fund classifications are more widely known and provide a more common comparison to other funds with similar investment mandates. In addition, like the ELCA fund performance, the Lipper comparisons are net of all fees. The Lipper Peer Group shown includes mutual funds which owned both U.S. and non-u.s. real estate securities for all time periods shown. The investment objective and performance objective of each ELCA fund remains unchanged. Lipper data obtained from Wilshire Associates Inc. (Wilshire Compass) as of Dec. 31, Mutual fund information was supplied by Lipper, a Thomson Reuters Company, subject to the following: Copyright 2014 Reuters. All rights reserved. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. 5

8 Report of Management We have prepared the accompanying combined financial statements of the ELCA Pension and Other Benefits Program that are administered by Portico Benefit Services for the years ended Dec. 31, 2015 and We are responsible for the content and integrity of these statements as well as all other information contained in the annual report. Other information presented in the annual report is consistent with information shown on the statements. The statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The statements include amounts based on management s best estimates and judgments. On a combined basis, we believe that the financial statements present fairly in all material aspects the financial condition and results of operations for the ELCA Pension and Other Benefits Program (doing business as Portico Benefit Services) for the periods presented in this report. The Total funds amounts in the financial statements have been audited by PricewaterhouseCoopers, LLP, independent certified public accountants, whose report appears on page 58. The independent auditors, engaged to express an opinion on the financial statements, meet periodically with, and have been given free access to, the audit committee and the trustees, without management present, to discuss internal controls, auditing and financial reporting matters. The appointment of the independent auditors is approved by the board of trustees. Portico Benefit Services recognizes its system of internal controls plays an important role for reliable financial statements. The system is designed to provide reasonable assurance as to the integrity and reliability of the financial statements, that assets are safeguarded and transactions are properly recorded and executed in accordance with management s authorization. The control environment is enhanced by selecting and training competent management, maintaining the highest standards of conduct by employees, appropriately segregating duties and delegating authority, and communicating accounting and operating policies and procedures to Portico Benefit Services employees. Management monitors the system of internal control for compliance. Portico Benefit Services maintains internal audit and operational compliance departments that independently assess the effectiveness of the system of internal control. The 16-member, independent board of trustees oversees the financial statements through its audit committee, several members of which could be considered financial experts. The audit committee is responsible for communications between the board of trustees and Portico Benefit Services independent auditors, internal auditors and financial management staff regarding financial statements, audits, accounting and financial report practices, adequacy and effectiveness of the system of internal controls, and the scope and results of the annual audit. The audit committee meets on a quarterly basis with management, independent auditors and the internal auditors. The Rev. Jeffrey D. Thiemann President and CEO May 24, 2016 Stacy A. Kruse Chief Operating and Financial Officer, Treasurer May 24,

9 Highlights Key Indicators: ELCA Retirement Plans, Health and Other Plans (as of Dec. 31, 2015) Contributions ELCA RETIREMENT PLAN, ELCA PARTICIPATING ANNUITY INVESTMENT FUND AND INSTITUTIONAL RETIREMENT PLANS (Dollars in Millions) HEALTH AND OTHER PLANS (Dollars in Millions) Employer and Other Member Benefits * ELCA RETIREMENT PLAN, ELCA PARTICIPATING ANNUITY INVESTMENT FUND AND INSTITUTIONAL RETIREMENT PLANS (Dollars in Millions) HEALTH AND OTHER PLANS (Dollars in Millions) Retirement benefits (excluding withdrawals) Plan withdrawals *Benefits do not include general and administrative expenses, or transfers and adjustments. 7

10 Highlights Members, ELCA Retirement and Other Benefits Program Members Active Not Active On leave Disabled Retired Survivors Subtotal Members, ELCA institutional retirement plans Total members 11,958 11, ,339 4,511 39,843 14,335 54,178 12,363 10, ,167 4,376 39,428 13,996 53,424 (Dollars In Thousands) Income from contributions Investment income/(loss) Investment expenses Net investment income/(loss) Benefits paid, including plan withdrawals Life insurance premiums General and administrative expenses Net assets available for plan benefits Benefit obligations Excess (shortage) of net assets over benefit obligations at year-end* 364,297 (37,027) (26,072) (63,099) 649,253 3,440 48,679 6,885,636 6,739, , , ,285 (26,079) 420, ,864 3,479 47,516 7,285,810 7,065, ,823 * See pages for discussion of benefit obligations. Also, see Notes to Financial Statements for discussion on the benefit obligation and market impact. 8

11 GENERAL AND ADMINISTRATIVE EXPENSES 2015 (%) 2014 (%) Retirement and Institutional Plans As a percentage of: Contributions Benefits paid Net assets Health and Other Plans As a percentage of: Contributions Benefits paid By Category Purchased services Salaries and benefits Managed care Depreciation Travel and other Occupancy and utilities Printing and supplies By Plan Retirement Plan Health benefits and other plans Institutional retirement plans Disability Benefits Plan Survivor Benefits Plan

12 2015 COMBINED STATEMENTS OF NET ASSETS Statements of Net Assets Available for Plan Benefits and Benefit Obligations as of Dec. 31, 2015 (Dollars in Thousands) ELCA Retirement Plan ELCA Participating Annuity Investment Fund ELCA Supplemental Retirement Benefits Trust ELCA Group Retirement Plans ASSETS Investments, at fair value Bonds Stocks Short-term investments Mutual funds and Commingled funds Private equity and real estate investments 1,110,851 2,108,978 81, , , , ,890 39, , , , , ,683 5,500 73,925 11,924 Total investments (Cost $6,506,973) Cash Collateral under securities lending program Foreign currency contracts Swaps/Futures Accrued interest and dividends receivable Contributions Receivable, net of allowance Other assets Due from brokers for securities sales Furniture, equipment and computer software, net 4,229,712 2, ,373 55, ,706 3,250 1,123 47,359 2,104,718 1, ,404 29, , ,142 3, , ,356 3, ,078 (154) 336 3,541 Total assets 4,774,224 2,434,034 3, ,867 LIABILITIES Foreign currency contracts Swaps/Futures Cash overdraft Payables for securities purchased Payables under securities lending program Deferred revenue Payables and accrued expenses Lease Obligations 55,941 2, , ,604 3,898 29,163 1,069 83, ,546 1,858 3, ,574 29, Total liabilities Net assets available for plan benefits 627,293 4,146, ,897 2,062,137 3,108 44, ,532 BENEFIT OBLIGATIONS Benefit obligation for active plan members Benefit obligation for retired plan members Other obligations 4,146,931 36,349 1,951, ,532 Total benefit obligations Excess (shortage) of net assets over benefit obligations 4,146,931 1,987,886 74, , ,532 The accompanying notes beginning 18 are an integral part of the financial statements. 10

13 11 ELCA Disability Benefits Plan ELCA Survivor Benefits Plan ELCA Health Plan ELCA Flexible Benefits Plan ELCA Benefits Contribution Trust All Other Funds (Audited) Total Funds 64,275 22,092 1,779 5,558 7, , ,795 1, , ,192 1, ,341 11, ,670 97,522 60,799 60,799 36,723 73,017 26,951 1,998 8,083 5, , ,620 1, , ,028 1, ,360 13,628 1,682 25, ,690 71,975 71,975 37,715 6,781 3, ,984 23, , ,214 15, , ,338 5,747 8,021 38,557 14,740 14,740 23, (308) 47,024 47,424 2,371 1,190 6, , ,280 1, , ,239 1, ,898 13, , , , ,390 (45,044) 8,115 5,915 14, ,364 9,910 30, ,432 1,615 14,178 16, ,128 2,311,810 3,121, ,057 1,092, ,221 7,013,184 4, ,165 93,609 1,601 27,780 9,490 24,510 89,007 9,910 8,017,499 93,551 3, , , ,435 1,615 1,131,863 6,885,636 4,492,812 1,952, ,897 6,739, ,746

14 2014 COMBINED STATEMENTS OF NET ASSETS Statements of Net Assets Available for Plan Benefits and Benefit Obligations as of Dec. 31, 2014 (Dollars in Thousands) ELCA Retirement Plan ELCA Participating Annuity Investment Fund ELCA Supplemental Retirement Benefits Trust ELCA Group Retirement Plans ASSETS Investments, at fair value Bonds Stocks Short-term investments Mutual funds and Commingled funds Private equity and real estate investments 1,064,879 2,272, , , , , ,006 42, , ,369 1,432 1, , ,569 6,400 77,381 11,481 Total investments (Cost $6,393,362) 4,413,873 2,199,680 3, ,346 Cash Collateral under securities lending program Foreign currency contracts Swaps/Futures Accrued interest and dividends receivable Contributions receivable, net of allowance Other assets Due from brokers for securities sales Furniture, equipment and computer software, net 2, ,344 52,649 1,498 14,031 3,489 2,097 36,010 1, ,521 25, ,245 1,312 21, ,463 3, ,008 (92) 150 2,384 Total assets 4,965,412 2,529,026 3, ,900 LIABILITIES Foreign currency contracts Swaps/Futures Cash overdraft Payables for securities purchased Payables under securities lending program Deferred revenue Payables and accrued expenses Lease obligations 52,568 3, , ,389 3,537 24,996 1,848 40, ,549 1, , ,327 30, Total liabilities Net assets available for plan benefits 585,254 4,380, ,215 2,190, ,291 39, ,283 BENEFIT OBLIGATIONS Benefit obligation for active plan members Benefit obligation for retired plan members Other obligations 4,380,158 48,932 1,990, ,283 Total benefit obligations Excess (shortage) of net assets over benefit obligations 4,380,158 2,039, , , ,283 The accompanying notes beginning 18 are an integral part of the financial statements. 12

15 13 ELCA Disability Benefits Plan ELCA Survivor Benefits Plan ELCA Health Plan ELCA Flexible Benefits Plan ELCA Benefits Contribution Trust All Other Funds (Audited) Total Funds 66,716 24,219 2,129 6,942 7, , ,004 1, , , ,519 14,006 1,367 20, ,042 66,798 66,798 38,244 66,891 29,979 2,215 8,966 5, , ,857 1, , ,586 1, ,551 14, , ,457 83,026 83,026 29,431 11,315 5, ,273 36, , ,157 13, , ,460 6,889 10,161 47,888 17,285 17,285 30, (187) 43,922 51,069 3,979 3,955 6, , ,309 1, , ,372 1, ,632 13, , , , ,004 (48,184) 8,113 5,971 14, ,787 9,788 28, ,875 2,821 12,291 16, ,362 2,271,298 3,355, ,068 1,182, ,486 7,321,468 3, ,362 85,008 2,319 26,939 9,209 22,942 64,745 9,788 8,330,712 84,624 5, , , ,414 2,821 1,044,902 7,285,810 4,750,373 1,991, ,998 7,065, ,823

16 2015 COMBINED STATEMENTS OF CHANGES IN NET ASSETS Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations for the Year Ended Dec. 31, 2015 (Dollars in Thousands) ELCA Retirement Plan ELCA Participating Annuity Investment Fund ELCA Supplemental Retirement Benefits Trust ELCA Group Retirement Plans Additions (Reductions) to Net Assets Investment gain (loss) Interest and other income Dividend income Net realized and unrealized gain (loss) on investments Other investment gain (loss) Investment expense 44,819 57,639 (132,732) 2,458 (15,251) 37,968 22,023 (67,346) 1,423 (7,370) (73) 2 (10) 3,342 4,074 (9,488) 173 (1,010) Net investment gain (loss) (43,067) (13,302) 1 (2,909) Contributions Employer contributions Member contributions Other contributions 76,492 28,444 14,230 10,547 Total contributions 104,936 24,777 Total Additions (Reductions) 61,869 (13,302) 1 21,868 Deductions from Net Assets Benefit payments Withdrawals Life Insurance Premiums General and Administrative Expenses 198,634 14, ,256 6, ,548 1,926 Total Deductions 213, , ,474 Transfers and adjustments (82,068) 82,213 (145) Net increase (decrease) in net assets available for plan benefits Increase (decrease) in benefit obligations (233,227) (233,227) (128,674) (51,726) (183) (292) (11,751) (11,751) Net change in excess (shortage) of net assets over benefit obligations Excess (shortage) of net assets over benefit obligations at beginning of period - (76,948) 151, ,355 Excess (shortage) of net assets over benefit obligations at end of period 74,251 2,464 The accompanying notes beginning 18 are an integral part of the financial statements. 14

17 15 ELCA Disability Benefits Plan ELCA Survivor Benefits Plan ELCA Health Plan ELCA Flexible Benefits Plan ELCA Benefits Contribution Trust All Other Funds (Audited) Total Funds 2, (3,020) 53 (378) (525) 16, ,572 16,047 11,811 2,046 13,857 (9,710) (7,520) (5,999) (1,521) 38,244 36,723 2, (3,770) 63 (407) (993) 5,393 1,707 7,100 6,107 4,089 3,440 1,345 8,874 (2,767) (11,051) 8,284 29,431 37, (554) 10 (1,318) (1,367) 127,010 48,255 21, , , ,918 22, ,968 9,710 (9,331) (2,545) (6,786) 30,603 23,817-6,778 6,778 6,778 6, ,582 (204) (8) 113 (121) (187) (308) 1,636 1,253 (3,589) 70 (326) (956) 4,719 2,500 7,219 6,263 12,737 12,737 (6,474) (9,614) 3,140 (48,184) (45,044) 21 (2) , (239) (5) (234) 16,362 16,128 92,572 86,721 (220,572) 4,252 (26,072) (63,099) 244,397 95,739 24, , , , ,182 3,440 48, ,372 (400,174) (326,097) (74,077) 219, ,746

18 2014 COMBINED STATEMENTS OF CHANGES IN NET ASSETS Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations for the Year Ended Dec. 31, 2014 (Dollars in Thousands) ELCA Retirement Plan ELCA Participating Annuity Investment Fund ELCA Supplemental Retirement Benefits Trust ELCA Group Retirement Plans ADDITIONS (REDUCTIONS) TO NET ASSETS Investment gain (loss) Interest and other income Dividend income Net realized and the change in unrealized gain Other investment gain Investment expense 47,790 66, ,974 2,363 (15,201) 42,761 27,432 55,153 1,274 (7,488) (12) 3,444 4,508 12, (984) Net investment gain (loss) 260, , ,502 Contributions Employer contributions Member contributions Other contributions 77,426 27,061 13,525 10,025 Total contributions 104,487 23,550 Total additions (reductions) 364, , ,052 DEDUCTIONS FROM NET ASSETS Benefit payments Withdrawals Life Insurance Premiums General and administrative expenses 203,312 14, ,716 5, ,254 2,691 Total deductions 217, , ,945 TRANSFERS AND ADJUSTMENTS (73,912) 73,912 Net increase (decrease) in net assets available for plan benefits Increase (decrease) in benefit obligations 72,882 72,882 2,337 33,279 (8) (172) 15,107 15,107 Net change in excess (shortage) of net assets over benefit obligations Excess (shortage) of net assets over benefit obligations at beginning of period (30,942) 182, ,191 Excess (shortage) of net assets over benefit obligations at end of period 151,199 2,355 The accompanying notes beginning 18 are an integral part of the financial statements. 16

19 17 ELCA Disability Benefits Plan ELCA Survivor Benefits Plan ELCA Health Plan ELCA Flexible Benefits Plan ELCA Benefits Contribution Trust All Other Funds (Audited) Total Funds 2, , (396) 7, ,173 11,984 1,782 13,766 (8,706) (15,299) (1,389) (13,910) 52,154 38,244 2, , (381) 6,577 5,438 1,718 7,156 13,733 4,202 3,479 1,091 8,772 4,961 8,013 (3,052) 32,483 29, (1,280) ,318 45,005 15, , , ,347 22, ,782 8,706 (17,380) 1,482 (18,862) 49,465 30,603 6,161 6,161 6,161 5, ,721 (43) (8) (179) (187) 1,846 1,468 3, (335) 6,941 4,761 2,500 7,261 14,202 12,786 12,786 1,416 7,500 (6,084) (42,100) (48,184) 6 (2) (1,154) (727) 43 1,176 (52) 1,228 15,134 16, , , ,517 3,985 (26,079) 420, ,493 89,974 18, , , , ,566 3,479 47, ,859 65, ,055 (71,466) 291, ,823

20 Notes to Financial Statements (Dec. 31, 2015 & 2014) Note 1 Organization and Description of Plans Administered by Portico Benefit Services Portico Benefit Services is separately incorporated as a Minnesota nonprofit corporation under Chapter 317A (the Minnesota nonprofit corporation act), and is governed by an independent 16 member board of trustees that is elected by the membership of the ELCA. As a separately incorporated ministry of the Evangelical Lutheran Church in America (ELCA), Portico Benefit Services administers the retirement, health, and related benefit plans for this church and other faith based organizations, and manages the trusts for the benefit plans as well as the trusts for several predecessor church plans. The ELCA Pension and Other Benefits Program is a Church Plan as defined in Section 414(e) of the Internal Revenue Code and in Title 1 of the Employee Retirement Income Security Act of 1974 (ERISA). The ELCA Pension and Other Benefits Program is not subject to ERISA. Portico Benefit Services files form 990 T, Exempt Organization Business Income Tax Return, with the Internal Revenue Service. Form 990 T is available for public inspection at Portico Benefit Services offices during normal business hours. See Note 9 Income Taxes for more information regarding income taxes. The ELCA Pension and Other Benefits Program plans that are administered by Portico Benefit Services are described below. The audited Total funds amounts on the Statements of Net Assets Available for Plan Benefits and Benefit Obligations, and the Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations include the summation of amounts from the various unaudited plans. The assets of each plan are held in various trusts and therefore do not allow one plan to fund the shortfall of another plan. Summary plan descriptions and other documents provide a more complete description of each plan s provisions. Summary plan descriptions can be viewed at myportico.porticobenefits.org. ELCA Retirement Plan The ELCA Retirement Plan is a defined contribution plan authorized under the provisions of 403(b)(9) of the Internal Revenue Code (IRC). This plan provides retirement benefits based on accumulated retirement contributions and investment earnings at the time of retirement. Eligible members are those sponsored as pastors or rostered laypersons serving under call, employed by an eligible employer, and meeting required work timetable obligations. Additionally, members are eligible to enroll when they are a self sponsoring ELCA pastor and are either called to a ministry and their employer chooses not to sponsor them or called to a ministry in which they are considered self employed in accordance with Internal Revenue Code 414(e)(5)(A) (i). All contributions are fully and immediately vested. There are 20 investment funds among which members may choose to invest both employer and member contributions. ELCA Participating Annuity Investment Fund The ELCA Participating Annuity Investment Fund is a type of immediate variable annuity that seeks to provide an income stream for life and income growth potential over the long term. When a new entrant decides to annuitize all or a portion of their retirement account, the money is transferred from the ELCA Retirement Plan and invested into the ELCA Participating Annuity Investment Fund. Benefits are not paid from a member s individual account; rather, a member s annuitized money is combined with that of all other annuitants. All participants share the mortality experience of the ELCA Participating Annuity Investment Fund. Annuity payments are periodically adjusted by Portico Benefit Services, typically each January. Periodic adjustments are currently based on the funded ratio of the ELCA Participating Annuity Investment Fund as of Sept. 30 of the prior year. The current method provides that if the funded ratio is 1.000, no adjustment will 18

21 be made. If the funded ratio is greater than or less than under the current method, annuity payments may be increased or decreased. Based on the funded ratio at Sept. 30, 2015 for the ELCA Participating Annuity Investment Fund, the annuity payments were increased by 1.4% for the 2016 calendar year. Previously, some members invested in the ELCA Participating Annuity Investment Fund through a bridge account, which gave them the opportunity to participate in this fund prior to annuitizing. This option is no longer available and no new contributions can be made to existing bridge accounts. Members who currently have bridge accounts participate in the fund and have their account balances adjusted monthly using an interest crediting rate until they annuitize the balance. The ELCA Participating Annuity Investment Fund is a multi asset class fund and seeks to generate rates of return in excess of the rate of inflation over longer time periods. The target allocation for this fund is shown in the following chart. Bonds 45 TARGET ALLOCATION (%) Stocks* 42 Private equity & real estate investments 13 * Certain commingled funds are reclassified from stocks to mutual funds for financial statement reporting purposes on the Statement of Net Assets. ELCA Supplemental Retirement Benefits Trust The ELCA Supplemental Retirement Benefits Trust provides a fixed benefit to employees of a predecessor plan (i.e., benefit plans prior to the formation of the ELCA) and, if specified by the predecessor plan, their surviving spouses and children. The legal trust document describes the monthly benefits payable under this trust that is based on the benefit formulas found in the predecessor plan documents. Annual benefits paid from this trust were $168,000 and $197,000 at Dec. 31, 2015 and Dec. 31, 2014, respectively. The primary investment objective of the ELCA Supplemental Retirement Benefits Trust is to meet the liabilities of the trust. The trust seeks to reduce investment risk by having a target allocation comprised solely of investment grade fixed income. ELCA Institutional Retirement Plans The ELCA institutional retirement plans are defined contribution and deferred compensation plans under the provisions of 403(b)(9) and 457(b) of the IRC. ELCA affiliated social ministry organizations (SMOs) and other faith-based organizations participate in these plans. Employers and employees can make contributions to retirement accounts for eligible employees. Each plan determines eligibility based on their own determined specific parameters. Vesting schedules vary between each plan with about half of the plans having an immediate 100% vesting schedule while the other half have various vesting schedules. There are 20 investment funds for the 403(b)(9) plan and 10 investment funds for the 457(b) plan from which members may choose to invest these contributions. Forfeitures: Forfeitures of unvested contributions from terminated participant accounts are used to offset future employer contributions. 19

22 Notes to Financial Statements (Dec. 31, 2015 & 2014) Participant Loans: Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Loan terms are a maximum of 60 months. The loans are secured by the balance in the participant s account and bear interest at a rate equal to 1% above the current prime rate as determined by Portico Benefit Services. Not all plans participate in offering loans to members. ELCA Disability Benefits Plan The ELCA Disability Benefits Plan provides three types of benefits for plan members who are totally disabled due to injury or physical or mental disorder and for plan members who are partially disabled due to certain neurological diseases. The benefits include: a monthly disability income benefit equal to two thirds of monthly defined compensation (less Social Security, other governmental disability benefits and certain earnings) ELCA retirement account contributions contributions for ELCA health (for member and eligible dependents) and survivor benefits coverage ELCA Survivor Benefits Plan The ELCA Survivor Benefits Plan offers to sponsored members, three types of life insurance basic, optional supplemental, and optional dependent life insurance. These benefits are fully insured by Securian Insurance Company. Basic group life insurance, including an accidental death and dismemberment (AD&D) benefit, pays out a sum of money upon the death of a sponsored member. The basic group life insurance provides a benefit that is two times annual defined compensation, with a minimum benefit of $6,000 and a maximum of $50,000 up to age 70. Between the ages 70 and 74, the benefit is reduced to 50% of the original amount, but not less than $6,000. For sponsored members over age 74, the benefit is reduced to 25% of the original amount, but not less than $6,000. Eligibility for the basic benefit is extended to retirees that meet age and service requirements. Portico retains a residual liability for beneficiaries who became eligible for monthly survivor benefit payments prior to Jan. 1, 2014, under the predecessor ELCA Survivor Benefits Plan, which was self funded. Optional supplemental life and dependent life insurance benefits can be purchased at member expense and includes additional group life insurance and accidental death and dismemberment (AD&D) protection. Members up to age 69 can purchase $50,000 benefit increments up to $200,000. Members age are eligible to purchase 50% of this amount and over age 74 can purchase 25% of this amount. The amount of coverage available for purchase for dependent life is based upon age. For members who were retired prior to Jan. 1, 2014, the ELCA Survivor Benefits Plan provides a lump sum benefit that ranges from $6,000 to $50,000, based on the member s age at death and the defined compensation of the member during the 12 months prior to retirement. The plan may also supplement surviving spouse income that varies by the member s age and years of plan participation prior to death. 20

23 ELCA Medical and Dental Benefits Plan The ELCA Medical and Dental Benefits Plan provides coverage for eligible hospital, medical, dental, and prescription drug expenses incurred by plan members and their eligible dependents. ELCA Primary members and spouses who take an annual health assessment, and complete certain follow up activities, earn wellness dollars into health reimbursement arrangements or health savings accounts. Additional benefits include nurse line services, fitness center discount, employee assistance program, and access to tax advantaged accounts. There are four ELCA-Primary options: Platinum+, Gold+, Silver+ and Bronze+. All four options offer the same set of benefits as described above, but they differ in contribution rates for sponsoring employers and costs for plan members. Platinum+ and Gold+ include a health reimbursement arrangement; Silver+ and Bronze+ include a health savings account. The Platinum+ option has the highest contribution rate and lowest deductible and out of pocket limit. The Gold+ and Silver+ options offer deductibles and out of pocket limits that fall between the Platinum+ and Bronze+ options. The Bronze+ option has the lowest contribution rate, highest deductible and out of pocket limit. ELCA Medicare-Primary health benefits include: Medicare supplement hospital and medical benefits, prescription drug benefits, dental benefits, SilverSneakers Fitness Program, and NurseLine SM services. ELCA Flexible Benefits Plan The ELCA Flexible Benefits Plan is intended to qualify as a cafeteria plan under 125 of the IRC. Participation in this plan is voluntary. The qualified benefits described below are available to eligible participants under this plan. Health care flexible spending account allows participants to be reimbursed with pretax dollars for eligible health care expenses incurred by participants and their eligible family members. Dependent care flexible spending account allows participants to be reimbursed with pretax dollars for eligible day care expenses incurred for the care of children or other eligible dependents to enable participants to work. All sponsored members are eligible to enroll in a dependent care Flexible Spending Account (FSA), except for those who have Aetna International health benefits, are receiving ELCA disability benefits, or are self sponsored; the IRS does not allow self employed individuals to have FSAs. A member s account balance may be subject to forfeiture under IRC rules. Forfeiture will occur as of the end of the last day of each plan year and grace period, or if applicable and earlier, on termination of participation. The member shall forfeit the balance of each account and such member account balance will be reduced to zero. Forfeited amounts will be used by Portico Benefit Services to pay for administrative costs of the plan. On Dec. 31, 2015, Portico Benefit Services estimates the plan shows potential underfunding by $308,000 for claims paid in excess of contributions for those members who terminated. The 2015 plan year will close in October Any shortfalls from the 2015 plan year will be funded by Portico Benefit Services operating fund and any forfeited amounts will help to pay for administrative costs. At the end of the 2014 plan year, $204,235 of prior year plan forfeitures were transferred to Portico Benefit Services operating fund to offset future plan operating expenses. 21

24 Notes to Financial Statements (Dec. 31, 2015 & 2014) ELCA Benefits Contribution Trust The ELCA Benefits Contribution Trust provides medical contribution subsidies to certain retired members with predecessor service. These subsidies are funded through trust funds set aside for that purpose, additional contributions by the ELCA, and other participating employers. All Other Funds All other funds are comprised of Portico Benefit Services Operating Fund and the Special Needs Retirement Fund. The Special Needs Retirement Fund supplements retirement income and pays the health contributions for retired pastors, rostered leaders, lay employees, and surviving spouses or ESGP who qualify based on income limitations and have Portico Benefit Services coverage. The Special Needs Retirement Fund is an ELCA fund that is jointly administered by the ELCA and Portico Benefit Services. Note 2 ELCA Pension and Other Benefits Program Funding Practices ELCA Retirement Plan The ELCA Retirement Plan is funded through employer and employee contributions. Employer contribution percentages may be different for each sponsored member, but generally may not be less than 10% of defined compensation for an ELCA rostered clergy, or not less than 6% of defined compensation for an ELCA layperson. All contributions are fully and immediately vested. The plan also allows employees to make member pretax contributions up to the limits of the IRS. ELCA Participating Annuity Investment Fund The ELCA Participating Annuity Investment Fund is funded by members who make the decision to annuitize all or a portion of their retirement plan. The ELCA Participating Annuity Investment Fund is also funded through members who previously participated in the bridge account. ELCA Supplemental Retirement Benefits Trust The plan in its current state is a non-contributory plan, with monthly benefits payable based on the benefit formulas found in the predecessor plan documents. ELCA Institutional Retirement Plans Social Ministry Organizations (SMOs) can make contributions to retirement accounts for eligible employees based on a specified percentage of compensation as stated in their adoption agreements. The contribution percentages can range from 0% to 12%. The plan also allows employees to make member pretax contributions up to the limits of the IRS. ELCA Disability Benefits Plan The ELCA Disability Benefits Plan is funded by employer-paid contributions, calculated as a percentage of members defined compensation. Employer contributions were 2.5% of defined compensation for 2015 and 0.0% of defined compensation for

25 ELCA Survivor Benefits Plan The ELCA Survivor Benefits Plan is funded by employer-paid contributions, calculated as a percentage of members defined compensation. Employer contributions were 0.8% of defined compensation for both 2015 and Optional supplemental life and dependent life insurance benefits can be purchased at member expense and includes basic group life insurance and accidental death and dismemberment (AD&D) protection. ELCA Medical and Dental Benefits Plan The ELCA Health Plan is self-insured and funded by employer-paid contributions, calculated as a percentage of member defined compensation, age, and varying by coverage elections and geographic area. Within certain minimum and maximum amounts, the 2015 contribution rates for members sponsored by participating employers ranged from 6.3% to 60.6% (5.7% to 54.7% in 2014) of the member s defined compensation. Retired and non-sponsored members pay the monthly contributions for the cost of their health coverage. ELCA Flexible Benefits Plan The Flexible Benefit Plan is funded by individual employee s contributions to their health flexible spending account, dependent care flexible spending account, and health savings account. The plan allows employees to make contributions up to the limits of the IRS. ELCA Benefits Contribution Trust The ELCA Benefits Contribution Trust is funded through two sources, the ELCA and participating employer contributions. The ELCA has agreed to contribute $2,500,000 per year. See Note 10 Related-Party Transactions for further discussion about related party transactions. Employer contributions were 0.70% of defined compensation for both 2015 and Participating employers contributed $4,719,000 for the year ended Dec. 31, 2015 and $4,761,000 for the year ended Dec. 31, The shortage of net assets over benefit obligations in this plan is an obligation of the ELCA. Note 3 Summary of Significant Accounting Policies Basis of Accounting Portico Benefit Services accounting and reporting policies conform to accounting principles generally accepted in the United States of America (GAAP). Portico Benefit Services does not use non-profit accounting guidance. Portico Benefit Services uses benefit plan and other applicable investment management guidance in the preparation and presentation of the financial statements and related notes to those statements. The financial statements are prepared on an accrual basis. General and administrative expenses are charged to the various plans through a combination of direct charges and an allocation rate calculated based on the workload which directly impacts each plan. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 23

26 Notes to Financial Statements (Dec. 31, 2015 & 2014) Contributions Contributions due but unpaid are shown net of an allowance of uncollectable accounts on the accompanying Statements of Net Assets Available for Plan Benefits and Benefit Obligations. The allowance for uncollectable accounts at Dec. 31, 2015 and Dec. 31, 2014 was $106,000 and $131,000, respectively. The allowance for uncollectable accounts is calculated based on a variety of factors including the length of time an account is past due, trends in past payment history, and communication with the employer or member. Contributions that are paid prior to the due date are shown as deferred revenue on the accompanying Statements of Net Assets Available for Plan Benefits and Benefit Obligations. Claims Claims related to the ELCA Medical and Dental Benefits Plan, the Disability Benefits Plan, and the Survivor Benefits Plan are administered and managed by third-party organizations. Claims are paid by the third party organizations as they are incurred and Portico accounts for those claims on an accrual basis. The ELCA Health Plan is self insured and the ability to pay claims is dependent on continued contributions and market performance. Claim amounts are included on the Benefit Payments line item on the Statement of Changes in Net Assets. Reclassifications Certain prior year amounts have been reclassified to conform with the current year presentation. These reclassifications had no impact on previously reported net assets available for plan benefits. Risk and Uncertainties The plans include investments that, in general, are exposed to various risks (e.g., interest rate risks, market risk conditions and credit risk). It is possible that exposure to these and other risks could materially affect investment valuation, participants account balances, annuity amounts and other amounts reported in the financial statements. The Investment and Corporate Social Responsibility Committee of the Board of Trustees reviews, at least annually, investment objectives and guidelines. In changing economic and capital market conditions, an in depth evaluation of guidelines and policy objectives may be performed by the Investment and Corporate Social Responsibility Committee of the Board of Trustees on a more frequent basis. Portico Benefit Services evaluates the risk and return objectives of each fund when setting optimal asset class allocation targets. Portico Benefit Services has an asset rebalancing policy which seeks to address the investment funds underlying asset class exposures and complements the long term target allocation policy. Rebalancing is implemented as a means to manage risk. A passive rebalancing approach has been adopted, and involves a complete rebalancing to long term target allocations upon reaching a boundary of an asset class range. Each fund s investments are also distributed with the intention to provide prudent diversification and limit undue concentration of portfolio positions. 24

27 Furniture and Equipment, Computer Hardware, and Computer Software, Net Furniture and equipment, computer hardware and computer software (fixed assets) are stated net of depreciation. Depreciation/amortization is calculated on the straight line method over the estimated useful lives of the assets. Upon sale or retirement of the assets, differences between the sale price and depreciated/ amortized value of the assets are recorded as gains or losses and credited or charged to operations. Repairs to and maintenance of fixed assets are expensed when incurred. Improvements to fixed assets, if material, are capitalized and depreciated over the remaining useful life of the asset. Assets are depreciated over a life of three to fifteen years. Annual additions to and depreciation/amortization of fixed assets by category can be seen in the chart below. FIXED ASSET ADDITIONS (Dollars in Thousands) 2015 Additions 2014 Additions Furniture and equipment 3, Computer hardware Capital leases Computer software not in service 86 Computer software Total 4,365 1,755 FIXED ASSET DEPRECIATION/AMORTIZATION (Dollars in Thousands) 2015 Depreciation/Amortization 2014 Accumulated Depreciation Furniture and equipment Computer hardware Capital leases 1,200 1,064 Computer software 2,231 2,047 Total 4,244 3,678 25

28 Notes to Financial Statements (Dec. 31, 2015 & 2014) The total assets held by category as of Dec. 31, 2015 and Dec. 31, 2014 are shown in the following chart. DEC. 31, 2015 (Dollars in Thousands) Fixed Asset Cost Accumulated Depreciation Net Fixed Assets Furniture and equipment 3, ,902 Computer hardware 2,708 1,644 1,064 Capital leases 5,118 2,877 2,241 Computer software not in service Computer software 21,886 18,269 3,617 Total 32,987 23,077 9,910 DEC. 31, 2014 (Dollars in Thousands) Fixed Asset Cost Accumulated Depreciation Net Fixed Assets Furniture and equipment 1, Computer hardware 2,252 1,067 1,186 Capital leases 4,609 1,726 2,882 Computer software 21,700 16,038 5,662 Total 29,581 19,794 9,788 Obligations Under Capital Leases and Operating Lease Portico Benefit Services has entered into capital leases expiring between 2017 and The assets and liabilities under these capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are amortized over their estimated useful productive lives of three to five years. Minimum future lease payments under capital leases as of Dec. 31, 2015 for the remainder of the leases are shown in the following chart. 26

29 YEAR ENDING DEC. 31 AMOUNT (Dollars in Thousands) Total minimum lease payments 1,696 Interest 50 Value of minimum lease payments 1,746 Rental expense for the year ended Dec. 31, 2015 was $1,285,000 and Dec. 31, 2014 was $1,253,000. The chart below is the future minimum payment obligations under the operating lease. YEAR ENDING DEC. 31 AMOUNT (Dollars in Thousands) , , , , , ,631 Total 9,444 Investments Investments are reported at fair value in accordance with ASC Topic 820, Fair Value Measurements as of the reporting date. See Note 5 Fair Value Measurement for discussion on valuation of investments. Security transactions are accounted for on a trade date (the date securities are purchased or sold) basis. Interest income is recorded daily on all debt securities, as is accretion of market discount and original issue discount and amortization of premium. Dividends are recorded on the ex dividend date. In accordance with the policy of stating investments at fair value, unrealized appreciation or depreciation is reflected in the Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations. The plans, net realized and unrealized gains (losses) on investments for the year ended Dec. 31, 2015 and for the year ended Dec. 31, 2014 are shown in the chart below. See Note 6 Derivative Financial Instruments for a breakout of futures, swaps and foreign currency contracts. 27

30 Notes to Financial Statements (Dec. 31, 2015 & 2014) Portico Benefit Services manages the investments of the plans in pools of common investment types. The assets, liabilities, income and expenses of each of the pools are allocated to the plans based on each plan s percentage ownership of the pools. DEC. 31, 2015 (Dollars in Thousands) Realized and Unrealized Gains/(Losses) Realized Gain/(Loss) Unrealized Gain/(Loss) Total Gain/(Loss) Total 199,211 (419,783) (220,572) DEC. 31, 2014 (Dollars in Thousands) Realized and Unrealized Gains/(Losses) Realized Gain/(Loss) Unrealized Gain/(Loss) Total Gain/(Loss) Total 480,783 (242,266) 238,517 Note 4 Investments Short term investments consist of cash and cash equivalents and all highly liquid debt instruments purchased with an original maturity of one year or less. There was $6,075,000 at Dec. 31, 2015 and $9,017,000 at Dec. 31, 2014 of foreign currency held in the short term investment accounts. Portico Benefit Services may engage in repurchase agreement transactions in pursuit of its investment objectives. Portico Benefit Services invests in repurchase agreements to provide for overnight liquidity. Collateral for these repurchase agreements is held at each counterparty s custodian in a segregated account for the benefit of Portico Benefit Services and each counterparty. As of Dec. 31, 2015, Portico Benefit Services had invested $149,160,000 in repurchase agreements, of which $121,304,000 is reported as collateral under securities lending program and $27,856,000 is reported as short term investments on the Statements of Net Assets Available for Plan Benefits and Benefit Obligations. As of Dec. 31, 2014, Portico Benefit Services had invested $282,601,000 in repurchase agreements, of which $213,346,000 is reported as collateral under securities lending program and $69,255,000 is reported as short term investments on the Statements of Net Assets Available for Plan Benefits and Benefit Obligations. 28

31 U.S. and Non U.S. Investments Portico Benefit Services has investments in numerous types of fixed income securities. Included are investments in both domestic and foreign bonds. The fair value of Portico Benefit Services investments in U.S. and non U.S. bonds are summarized in the following chart. (Dollars in Thousands) DEC. 31, 2015 DEC. 31, 2014 Bonds, U.S. 2,069,160 2,046,219 Bonds, non-u.s. 242, ,079 Total investments in bonds 2,311,810 2,271,298 Portico Benefit Services has direct investments in common and preferred stocks of a wide range of companies. Included are investments in common and preferred stocks of domestic and foreign corporations. The market value of Portico Benefit Services investments in U.S. and non U.S. stocks are summarized in the following chart. (Dollars in Thousands) DEC. 31, 2015 DEC. 31, 2014 Stocks, U.S. 1,410,667 1,535,507 Stocks, non-u.s. 1,710,379 1,820,361 Total investments in stocks 3,121,046 3,355,868 Commitments Portico Benefit Services invests in a variety of limited partnerships and has unfunded commitments to those limited partnerships. The unfunded portion of the commitment is a contractual obligation to be met for all currently active partnerships in accordance with the terms of the active partnership agreements. 29

32 Notes to Financial Statements (Dec. 31, 2015 & 2014) Capital called during the year is funded in the current year. Recallable capital represents a distribution of partner s committed capital that was called and invested during the investment period. In accordance with the partnership agreement, recallable capital may be returned as proceeds to limited partners and is deemed a contractual liability to fund additional investments prior to the fund s official investment period closing. Portico Benefit Services has unfunded commitments as shown in the following chart. (Dollars in Thousands) UNFUNDED COMMITMENTS DEC. 31, 2015 Total Commitments Capital Called and Funded Through Dec. 31, 2014 Capital Called and Funded During 2015 Recallable Capital Unfunded Commitments at Dec. 31, , ,328 61,230 1, ,724 (Dollars in Thousands) UNFUNDED COMMITMENTS DEC. 31, 2014 Total Commitments Capital Called and Funded Through Dec. 31, 2013 Capital Called and Funded During 2014 Recallable Capital Unfunded Commitments at Dec. 31, , ,504 63,605 1, ,352 Offsetting Assets and Liabilities Certain financial instruments and derivative instruments are eligible for offset in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations. Derivative instruments, repurchase agreements and securities borrowing and lending agreements may be subject to an International Swaps and Derivatives Association (ISDA) Master Agreement. An ISDA Master Agreement governs certain financial instruments and contains provisions related to collateral and netting provisions in the event of default. An ISDA Master Agreement with each counterparty may create a right of offset for certain derivative instruments payables and/ or receivables, repurchase agreements and securities lending amounts with collateral held and/or posted and create one single net payment in the event of default or termination. Financial instrument amounts subject to master netting arrangements are presented on a gross basis in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations. The following chart 31 presents the gross and net information of assets subject to master netting arrangements. Financial instruments not subject to master netting agreements are not eligible for net presentation and are excluded from the chart

33 DEC. 31, 2015 (Dollars in Thousands) Gross Amounts Not Offset in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations Assets Gross Amounts of Recognized Assets Gross Amounts Offset in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations Net Amounts of Assets Presented in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations Financial Instruments 1 Cash Collateral Received Securities Collateral Received Net Amount 2 Repurchase agreements Securities lending Forward foreign currency contracts Swap agreements 27,856 27,856 27, , , ,278 47,886 86,069 86,069 85, DEC. 31, 2014 (Dollars in Thousands) Gross Amounts Not Offset in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations Assets Gross Amounts of Recognized Assets Gross Amounts Offset in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations Net Amounts of Assets Presented in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations Financial Instruments 1 Cash Collateral Received Securities Collateral Received Net Amount 2 Repurchase agreements 69,255 69,255 69,255 Securities lending 784, , ,450 29,912 Forward foreign currency contracts Swap agreements 70,031 70,031 69, Represents the amount of assets that could be offset by liabilities with the same counterparty under master netting or similar arrangements that management elects not to offset on the Statements of Nets Assets Available for Plan Benefits and Benefit Obligations. 2. Represents the net amount due from counterparties in the event of default. 31

34 Notes to Financial Statements (Dec. 31, 2015 & 2014) The following chart presents the gross and net information of liabilities subject to master netting arrangements. Financial instruments not subject to master netting agreements are not eligible for net presentation and are excluded from the chart below. DEC. 31, 2015 (Dollars in Thousands) Gross Amounts Not Offset in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations Liabilities Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations Net Amounts of Liabilities Presented in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations Financial Instruments 1 Cash Collateral Pledged Securities Collateral Pledged Net Amount 2 Forward foreign currency contracts Swap agreements 85,752 85,752 85, ,033 2, ,751 DEC. 31, 2014 (Dollars in Thousands) Gross Amounts Not Offset in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations Liabilities Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations Net Amounts of Liabilities Presented in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations Financial Instruments 1 Cash Collateral Pledged Securities Collateral Pledged Net Amount 2 Forward foreign currency contracts Swap agreements 69,589 69,589 69, ,496 3, , Represents the amount of liabilities that could be offset by assets with the same counterparty under master netting or similar arrangements that management elects not to offset on the Statements of Nets Assets Available for Plan Benefits and Benefit Obligations. 2. Represents the net amount due from counterparties in the event of default. 32

35 Note 5 Fair Value Measurements The measurement basis for Portico Benefit Services financial instruments is fair value. Financial instruments measured at fair value on a recurring basis include: Financial assets primarily consist of stocks, bonds, mutual funds, short term investments, real estate investment funds or partnerships, private equity partnerships or funds, collateral under securities lending program and of derivatives such as foreign currency contracts, futures contracts and swap contracts. Financial liabilities consist primarily of payables under securities lending program and of derivatives such as foreign currency contracts, futures contracts and swap contracts. GAAP defines fair value as the price that would be received from selling an asset or the price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date, known as an exit price. GAAP also establishes a three level fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs with measuring fair value. Where possible, Portico utilizes prices that are obtained from an independent pricing service. When prices from an independent pricing service are not readily available or are deemed unreliable, Portico Benefit Services own assumptions are utilized to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date. Portico Benefit Services uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition may cause an instrument to be reclassified from Level 1 to Level 2 or from Level 2 to Level 3. Financial assets and financial liabilities recorded on the Statements of Net Assets Available for Plan Benefits and Benefit Obligations at fair value are categorized based on the reliability of inputs to the valuation techniques as follows: Level 1 Financial assets and financial liabilities with values based on unadjusted quoted prices for identical assets or liabilities in an active market that Portico Benefit Services can access. Level 2 Financial assets and financial liabilities whose values are based on the following: quoted prices for similar assets or liabilities in active markets quoted prices for identical assets or liabilities in non active markets, or valuation models with inputs that are observable, directly or indirectly, for substantially the full term of the asset or liability Level 3 Financial assets and financial liabilities with values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs may reflect Portico Benefit Services estimates of the assumptions that market participants would use in valuing the financial assets and financial liabilities. In determining fair value, Portico Benefit Services principally uses the market approach which utilizes market data for the same or similar instruments. To a lesser extent, Portico Benefit Services uses the income approach which involves determining fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. 33

36 Notes to Financial Statements (Dec. 31, 2015 & 2014) Observable inputs are those used by market participants in valuing financial instruments that are developed based on available market data, obtained from independent sources. In the absence of observable inputs, unobservable inputs reflect Portico Benefit Services estimates of the assumptions market participants would use in valuing financial assets and financial liabilities and are developed based on the best information available in the circumstances. The availability of observable inputs varies by instrument. In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair value requires more judgment. The level in the fair value hierarchy within which the fair value measurement is categorized is determined based on the lowest level of input that is significant to the fair value measurement in its entirety. Summary of Valuation Techniques for Presented Classes of Financial Assets and Financial Liabilities Corporate Bonds and Publicly Traded Limited Partnerships Fair value of corporate bonds and publicly traded limited partnerships are valued by pricing services and are based on the most recent observable trade and/or external quotes, depending on availability. The most recent observable trade price is given the highest priority as the valuation benchmark based on an evaluation of transaction date, size, frequency and bid offer. Corporate bond prices may be adjusted by bond or credit default swap spread movement. When neither external quotes nor a recent trade is available, the bonds are valued using a discounted cash flow approach based on risk parameters of comparable securities. Corporate bonds and publicly traded limited partnerships are generally classified as Level 2 or Level 3 in the fair value hierarchy. Mortgage Backed and Asset Backed Commercial mortgage backed securities (CMBS), collateralized mortgage obligations (CMO) and asset backed securities (ABS) are valued based on prices provided by an independent pricing service. They may use a credit spreads for the particular security. When price or credit spreads are not observable, the valuation is based on prices of comparable bonds or the present value of expected future cash flows. When estimating the fair value based on the present value of expected future cash flows, the best estimate is used of the key assumptions, including forecasted credit losses, pre payment rates, forward yield curves and discount rates commensurate with the risks involved, while also taking into account performance of the underlying collateral. CMBS, CMO and ABS are classified as Level 3 in the fair value hierarchy if external prices or credit spreads are unobservable or if comparable trades/assets involve significant subjectivity related to property type differences, cash flows, performance and other inputs; otherwise, they are classified as Level 2 in the fair value hierarchy. U.S. Government and Agencies U.S. government and agencies consist of U.S. treasury securities and U.S. agency securities. U.S. treasury securities are valued using quoted market prices provided by an independent pricing service and are generally classified as Level 1 in the fair value hierarchy. U.S. agency securities are comprised of two main categories consisting of agency issued debt and mortgage pass throughs. Agency issued debt securities are generally valued using quoted market prices. Mortgage pass throughs include to be announced (TBA) securities and mortgage pass through certificates. TBA securities are generally valued using quoted market prices. The fair value of mortgage pass through certificates are model driven based on the comparable TBA security. Agency issued debt securities and mortgage pass throughs are generally classified as Level 2 in the fair value hierarchy. 34

37 Non U.S. Governments and Agencies Sovereign government obligations are valued using quoted prices provided by an independent pricing service in active markets when available. To the extent quoted market prices are not available, fair value is determined based on reference to recent trading activity and quoted prices of similar securities by the pricing service. These securities are generally classified as Level 2 in the fair value hierarchy. Municipals The fair value of municipal bonds is valued using prices provided by an independent pricing service. The service determines prices using recent trade activity, market price quotations provided by an independent pricing service and new issuance levels. In the absence of this information, fair value is calculated using comparable bond credit spreads. Current interest rates, credit events and individual bond characteristics (e.g., coupon, call features, maturity and revenue purpose) are considered in the valuation process. Municipal bonds are generally classified as Level 2 in the fair value hierarchy. Convertible Debentures Convertible Debentures consist of corporate bonds that can be converted into the issuer s common stock at a pre determined price. Fair value is derived from dealer quotes and exchange prices provided by an independent pricing service, when available. When dealer quotes or price is not available, sensitivity analysis is utilized to evaluate the security. Sensitivity adjustments are based upon changes in conversion value and investment value from the time an observable, quoted price was obtained. Convertible debentures are classified as Level 2 in the fair value hierarchy. Stocks Fair value of U.S. securities traded on a national exchange (U.S. equity securities, convertible preferred stocks and equity futures) are stated at the last reported sales price on the valuation date. Any foreign securities held in non U.S. pools are subjected to being valued using a pricing service that considers the correlation of trading patterns of the foreign security to the intraday trading in the U.S. markets for investments such as, Corporate Stock, American depository receipts (ADRs), and exchange traded funds. This pricing values the movement of certain indexes of securities based on a statistical analysis of the historical relationship and applies a factor to the last reported sales price on the day of the valuation. Not all foreign securities apply a factor to the sales price. If the foreign security is in a market where there is a national holiday on the valuation date, there is no time zone difference from U.S. securities, or there is no movement in the market indexes, no factor is applied. For securities for which market prices are not readily available, the fair values are determined based on quoted market close prices for similar issues, or dealer quotes, or pricing models utilizing market observable inputs from comparable securities as described above. These securities are generally classified as Level 1 or Level 2 in the fair value hierarchy. These securities are considered Level 2 securities when they have inputs other than quoted prices, that are observable for the asset or liability, either directly or indirectly. Short Term Investments Short term financial instruments, including cash equivalents, time deposits, repurchase agreements, commercial paper and other short term investments are generally recorded at cost, which, due to the short term nature, approximates the fair value of these instruments. These securities can be classified as Level 1 or Level 2 in the fair value hierarchy. Securities are classified as Level 1 securities when inputs are quoted prices in active markets for identical securities. They are considered Level 2 securities when they have inputs other than quoted prices, that are observable for the asset or liability, either directly or indirectly. 35

38 Notes to Financial Statements (Dec. 31, 2015 & 2014) Mutual Funds and Commingled Funds Mutual funds include money market funds, emerging market mutual funds, and other similar investments. Mutual funds and money market funds are stated at the last reported net asset value at the close of each business day. Commingled Funds are valued at net asset value as reported by the fund manager. Valuations of investments within commingled funds are generally based upon methodologies such as the market based approach, which may use related assets or liabilities, recent transactions, market multiples, book values, and other methods that may utilize unobservable inputs and assumptions to value the investment. These securities can be classified as Level 1 or Level 2 in the fair value hierarchy. Securities are classified as Level 1 securities when inputs are quoted prices in active markets for identical securities. They are considered Level 2 securities when they have inputs other than quoted prices, that are observable for the asset or liability, either directly or indirectly. Private Equity Funds, Limited Partnerships and Real Estate Funds In determining the fair value of Portico s portfolio investments, which are comprised of limited partnership interests, Portico generally utilizes the audited GAAP financial statements received from the limited partnership, and the fair value is determined based on the Partnership s ownership percentage of the limited partnership. The underlying investments of the limited partnership are typically valued following the authoritative guidance on fair value measurements and disclosures. Portico is generally restricted from selling its partnership interests without approval from the general partner of the limited partnership. Distributions are received by Portico from the liquidation of the underlying assets of the limited partnership. Portico estimates that the underlying assets will be ratably liquidated over the remaining life of the Partnership. Because of the inherent uncertainty of valuation, those estimated values may materially differ from any realized proceeds received from the limited partnerships. Valuations of investments within private equity and real estate investments are determined by the manager and generally based upon valuation methodologies such as market multiples, discounted cash flows, or other accepted methods that may utilize unobservable inputs and assumptions deemed appropriate for the type of investment and are consistent with what other market participants would use in pricing such securities. The valuation inputs include inputs related to movements in appropriate and relevant indices. Significant increases (decreases) in these inputs could result in significantly higher (lower) fair value measurements. The estimated remaining life to liquidation of the private equity, limited partnerships and real estate funds ranges from less than 1 year to 15 years. Redemptions are not permitted. These funds distribute proceeds from the liquidation of the underlying assets for the funds. Swaps and Futures Derivatives consist of fixed income futures contracts, equity index futures, interest rate swaps, credit default swaps and total return swaps. Interest rate, credit default and total return swaps derive their value from underlying asset prices, indices, reference rates, and other inputs or a combination of these factors. Futures and Interest Rate Swaps are priced using a pricing service. Over-the-counter derivatives are priced using broker dealer quotations. Depending on the product and the terms of the transaction, the value of the derivatives can be estimated by using a series of techniques, including simulation pricing models. The pricing models use inputs that are observed from actively quoted markets such as issuer details, indices, spreads, interest rates, yield curves, dividends and exchange rates. Derivatives that use similar valuation techniques and inputs as described above are categorized as Level 2 in the fair value hierarchy. Futures contracts that are traded on a national securities exchange, are stated at the last reported sale or settlement price on the day of valuation. To the extent that these instruments are actively traded and valuation adjustments are not applied, they are classified as Level 1 in the fair value hierarchy. 36

39 Collateral Under Securities Lending Program and Payables Under Securities Lending Program Fair value of collateral under a securities lending program is based upon quoted market close prices for identical securities from the exchanges upon which they trade. For securities for which market prices are not readily available, fair values are determined by a pricing service based upon quoted market close prices for similar issues, dealer quotes or pricing models utilizing market observable inputs from comparable securities. Amortized cost of short term financial instruments, including time deposits, repurchase agreements, commercial paper and other short term investments approximates the fair value of these instruments. Assets included in the securities on loan program include equities, fixed income, certificates of deposit, repurchase agreements and commercial paper. These securities and corresponding payables are classified as Level 2 in the fair value hierarchy. Forward Foreign Currency Contracts Foreign currency contracts are agreements between two parties to buy and sell currencies at a set price on a future date. The U.S. dollar value of forward currency contracts is determined using current forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is marked to market daily. These instruments and liabilities are classified as Level 2 in the fair value hierarchy. 37

40 Notes to Financial Statements (Dec. 31, 2015 & 2014) The charts below and 39 set forth, for each of the fair value hierarchy levels, Portico Benefit Services assets and liabilities measured at fair value. AT DEC. 31, 2015 (Dollars in Thousands) Level 1 Level 2 Level 3 At Fair Value Investments Bonds Corporate bonds 716, ,397 Mortgage-backed and asset backed 21,084 21,084 U.S. government and agencies 381, , ,876 Non-U.S. government and agencies 36,725 36,725 Municipals 5,660 5,660 Treasury inflation protected 313, ,955 Term loans 12,041 12,041 Private placement 310, ,380 Convertible debentures 5,692 5,692 Total bonds 695,739 1,604,030 12,041 2,311,810 Stocks U.S. equity 1,408,120 2, ,410,667 Non-U.S. equity 296,014 1,414, ,710,379 Total stocks 1,704,134 1,416, ,121,046 Short-term investments 7, , ,057 Mutual funds and Commingled Funds 225, ,173 1,092,050 Private equity and real estate investments A Private equity limited partnerships 136,387 Venture capital 160,042 Real estate 46,827 Natural resources 3,965 Total private equity and real estate investments 347,221 TOTAL INVESTMENTS, AT FAIR VALUE 2,633,453 4,020,387 12,123 7,013,184 Assets Collateral under securities lending program 744, ,165 Foreign currency contracts 93,609 93,609 Swaps/Futures 1, ,601 Liabilities Payables under securities lending program (47,886) (47,886) Foreign currency contracts (93,551) (93,551) Swaps/Futures (1,646) (2,033) (3,679) A: In accordance with Subtopic , certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this chart are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. 38

41 AT DEC. 31, 2014 (Dollars in Thousands) Level 1 Level 2 Level 3 At Fair Value Investments Bonds Corporate bonds Mortgage-backed and asset backed U.S. government and agencies Non-U.S. government and agencies Municipals Treasury inflation protected Term loans Private placement Convertible debentures Total bonds 327, , , ,593 21, ,290 32,924 5, ,903 11,610 1,612, , , ,611 21, ,100 32,924 5, ,442 27, ,235 11,610 2,271,298 Stocks U.S. equity Non-U.S. equity Total stocks 1,531, ,433 1,854,151 3,789 1,497,928 1,501,717 1,535,507 1,820,361 3,355,868 Short-term investments 10, , ,068 Mutual funds and Commingled Funds 240, ,253 1,182,748 Private equity and real estate investments A Private equity limited partnerships Venture capital Real estate Natural resources Total private equity and real estate investments 146, ,019 48,514 3, ,486 TOTAL INVESTMENTS, AT FAIR VALUE 2,735,966 4,218,117 27,899 7,321,468 Assets Collateral under securities lending program Foreign currency contracts Swaps/Futures 2, ,362 85, ,362 85,008 2,319 Liabilities Payables under securities lending program Foreign currency contracts Swaps/Futures (2,238) (29,912) (84,624) (3,555) (29,912) (84,624) (5,793) A: In accordance with Subtopic , certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this chart are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position. 39

42 Notes to Financial Statements (Dec. 31, 2015 & 2014) The chart below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable Level 3 inputs during the years ended Dec. 31, 2015 and Dec. 31, DEC. 31, 2015 (Dollars in Thousands) Level 3 Balance, Jan. 1, ,899 Transfers Out Purchases Sales Unrealized gains/(losses) 1 Realized gains/(losses) 2 (308) 15,779 (25,675) 97 (5,669) Balance as of Dec. 31, ,123 DEC. 31, 2014 (Dollars in Thousands) Level 3 Balance, Jan. 1, ,256,210 Transfers Out Purchases Sales Unrealized gains/(losses) 1 Realized gains/(losses) 2 (1,076,848) 257,682 (555,212) (57,454) 203,521 Balance as of Dec. 31, , Unrealized gains/(losses) are included in net realized and the change in unrealized gain (loss) on investments on the Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations of which $5,423 and $8,681 in losses relate to securities still held at Dec. 31, 2015 and Dec. 31, 2014, respectively. 2. Realized gains/(losses) are included in net realized and the change in unrealized gain (loss) on investments on the Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations. Transfers In and/or Out of Levels Transfers in and/or out of levels are reflected as of the actual date of the event or change in circumstances that caused the transfer. For the year ended Dec. 31, 2015, there were transfers out of Level 1 into Level 2 of $6,613,000 for non-u.s. investments and transfers out of Level 2 into Level 1 of $644,000 due to a foreign pricing factor being applied or not applied to the securities in the current year from the prior year. There were transfers out of level 1 and into level 3 of $2,000 and out of level 3 and into level 2 of $291,000 due to a change in the observability of market inputs. For the year ended Dec. 31, 2014, there were transfers out of Level 1 into Level 2 of $19,196,000 for non U.S. investments and transfers out of Level 2 into Level 1 of $1,435,000, due to a foreign pricing factor being applied or not applied to the securities in the current year from the prior year. 40

43 Note 6 Derivative Financial Instruments Portico Benefit Services, in accordance with the ELCA trust documents, has established an investment policy permitting the use of derivative instruments by internal and external investment managers. This investment policy expressly identifies the permissible uses of derivative instruments and contains accounting and management controls designed to ensure conformance with these policies. Portico Benefit Services and its managers utilize financial futures, forwards and swaps to assist in controlling risk and enhance portfolio values in a manner that is prudent and intended to further the purposes of the investment portfolio. Portico Benefit Services uses futures to keep the portfolio fully invested and to manage the exposure to interest rate and market currency fluctuations. Gains or losses on futures contracts can offset changes in the yield of securities. When a futures contract is opened, cash or other investments equal to the required initial margin deposit are held on deposit with and pledged to the broker. Additional securities held by the portfolios may be earmarked to cover open futures contracts. The futures contract s daily change in value ( variation margin ) is either paid to or received from the broker, and is recorded as an unrealized gain or loss. When the contract is closed, realized gain or loss is recorded equal to the difference between the value of the contract when closed. Portico Benefit Services uses forwards to reduce the risk of foreign currency fluctuations. Portico Benefit Services manages exposure to short term currency fluctuations in foreign securities by purchasing foreign currency contracts. These contracts are marked to market daily. The gains and losses on forward foreign currency contracts are netted against the gains and losses on the underlying foreign securities. Portico Benefit Services utilized various types of swaps transactions. Swap transactions are negotiated contracts ( over-the-counter OTC swaps ) between an investment manager and a counterparty or centrally cleared ( centrally cleared swaps ) with a central clearinghouse through a Futures Commission Merchant ( FCM ), to exchange investment cash flows, assets, foreign currencies or market linked returns at specified, future intervals. Portico Benefit Services uses interest rate swap agreements to manage exposure to interest rate risk. Portico Benefit Services uses equity index swaps to gain exposure to equity indices where futures exposure is not available or practical and total return swap agreements to gain or mitigate exposure of the underlying reference. Portico enters into Credit Default Swap contracts in order to provide diversified credit exposure to bond/loan assets classes and hedge the risk of credit default. Credit default swap contracts are agreements in which one party pays fixed periodic payments to a counterparty in consideration for a guarantee from the counterparty to make a specific payment should a specified credit event(s) take place. Credit events are defined under individual swap agreements and generally include bankruptcy, failure to pay, restructuring, repudiation/moratorium, obligation acceleration, and obligation default. The cash collateral related to these agreements is used to help mitigate both counterparty risk or termination of the contract by requiring the pledging/posting of assets to the other party to secure any outstanding obligations. As the buyer of protection, Portico pays periodic fees in return for payment by the seller, which is contingent upon an adverse credit event occurring in the underlying issuer. As a seller of protection, Portico collects periodic fees from the buyer and profits if the credit of the underlying issuer remains stable or improves while the swap is outstanding, but the seller in a credit default swap contract would be required to pay the amount of credit loss, determined as specified in the agreement, to the buyer in the event of an adverse credit event in the reference entity. The values for credit indexes serve as an indicator of the current status 41

44 Notes to Financial Statements (Dec. 31, 2015 & 2014) of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The maximum potential amount of future payments is equal to the notional value of Credit Default Swaps at Dec. 31, 2015 of $14,076. In connection with these agreements, cash may be identified as collateral or margin in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default, bankruptcy, or insolvency. A derivative instrument may incur a mark-to-market loss if the value of the derivative decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the derivative. Portico Benefit Services risk of loss from the counterparty credit risk on over the counter derivatives is generally limited to the aggregate unrealized gain netted against any collateral held. With exchange traded futures and centrally cleared swaps, there is minimal counterparty credit risk because the exchange s clearinghouse, as counterparty to such derivatives, guarantees against a possible default, thus the credit risk is limited to the failure of the clearinghouse. However, credit risk still exists in exchange traded futures and centrally cleared swaps with respect to initial and variation margin that is held in a broker s customer accounts. The derivative instruments used by Portico Benefit Services have not been designated as hedging instruments under the provisions of ASC Topic 815, Derivatives and Hedging and, accordingly, are marked to market with changes in value included in unrealized gains (losses). The following is a summary of the average outstanding volume by derivative instrument for the year ended Dec. 31, 2015: DERIVATIVE INSTRUMENT AVERAGE NOTIONAL COST * Futures Contract - Equity - Long Futures Contract Fixed Income - Long Futures Contract - Equity - Short Futures Contract Fixed Income - Short Credit Default Swaps - Buy Protection Credit Default Swaps - Sell Protection DERIVATIVE INSTRUMENT 69,914 52,990 31, ,415 2,058 7,459 AVERAGE UNREALIZED APPRECIATION * AVERAGE UNREALIZED DEPRECIATION * Interest Rate Swaps Contracts 258 (1,862) DERIVATIVE INSTRUMENT AVERAGE ASSET * AVERAGE LIABILITY * Forward Foreign Currency Contracts 72,918 72,637 * Based on the ending quarterly outstanding amounts for the year ended Dec. 31,

45 The following is a summary of the average outstanding volume by derivative instrument for the year ended Dec. 31, 2014: DERIVATIVE INSTRUMENT AVERAGE NOTIONAL COST * Futures Contract Equity Long Futures Contract Fixed Income Long Futures Contract Equity Short Futures Contract Fixed Income Short Credit Default Swaps Sell Protection DERIVATIVE INSTRUMENT 84,144 96,558 35,315 83,600 10,799 AVERAGE UNREALIZED APPRECIATION * AVERAGE UNREALIZED DEPRECIATION * Equity Index and Total Return Swap Contracts Interest Rate Swaps Contracts 1, (1,160) (1,619) DERIVATIVE INSTRUMENT AVERAGE ASSET * AVERAGE LIABILITY * Forward Foreign Currency Contracts 141, ,778 * Based on the ending quarterly outstanding amounts for the year ended Dec. 31,

46 Notes to Financial Statements (Dec. 31, 2015 & 2014) The following chart presents derivative instruments, by contract type, and the impact on Portico Benefit Services Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations for the years ended Dec. 31, 2015 and Dec. 31, IMPACT OF DERIVATIVES ON THE STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS AND BENEFIT OBLIGATIONS FOR THE YEAR ENDED DEC. 31, 2015 (Dollars in Thousands) Derivatives Not Accounted for as Hedging Instruments Under ASC 815 Location of Gain/(Loss) on Derivatives Recognized in Income Realized Gain/(Loss) on Derivatives Recognized in Income Change in Unrealized Appreciation(Depreciation) on Derivatives Recognized in Income Foreign currency contracts Net realized and the change in unrealized gain (422) (313) Futures contracts Net realized and the change in unrealized gain (377) (216) Swap agreements Net realized and the change in unrealized gain (2,845) 721 Total (3,644) 192 IMPACT OF DERIVATIVES ON THE STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS AND BENEFIT OBLIGATIONS FOR THE YEAR ENDED DEC. 31, 2014 (Dollars in Thousands) Derivatives Not Accounted for as Hedging Instruments Under ASC 815 Location of Gain/(Loss) on Derivatives Recognized in Income Realized Gain/(Loss) on Derivatives Recognized in Income Change in Unrealized Appreciation(Depreciation) on Derivatives Recognized in Income Foreign currency contracts Net realized and the change in unrealized gain (1,012) 436 Futures contracts Net realized and the change in unrealized gain (2,507) (1,747) Swap agreements Net realized and the change in unrealized gain (2,470) (1,903) Total (5,989) (3,214) The foreign currency contracts receivable balance was $93,609,000 as of Dec. 31, 2015 and $85,008,000 as of Dec. 31, The foreign currency contracts payable balance was $93,551,000 as of Dec. 31, The foreign currency contracts payable balance was $84,624,000 as of Dec. 31,

47 The following chart summarize the fair market value of derivative positions as of Dec. 31, 2015 and Dec 31, IMPACT OF DERIVATIVES ON THE STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS AND BENEFIT OBLIGATIONS DEC. 31, 2015 AND DEC. 31, 2014 (Dollars in Thousands) Derivatives Not Accounted for as Hedging Instruments Under ASC 815 Asset derivative instruments Location Dec. 31, 2015 Fair Value Dec. 31, 2014 Fair Value Foreign currency contracts Foreign currency contracts, assets 93,609 85,008 Stock index futures contracts Swaps/Futures 1,062 1,425 Bond futures contracts Swaps/Futures Total 94,871 86,752 Liability derivative instruments Foreign currency contracts Foreign currency contracts, liabilities (93,551) (84,624) Stock index futures contracts Swaps/Futures (639) (946) Bond futures contracts Swaps/Futures (996) (1,001) Total (95,186) (86,571) Other derivative instruments Interest rate and credit default swap agreements Swaps/Futures (1,779) (3,271) Stock index and total return stock swap agreements Swaps/Futures Variation margin on swap agreements Other assets/payables and accrued expenses 1,541 3,411 Total (238)

48 Notes to Financial Statements (Dec. 31, 2015 & 2014) Note 7 Portfolio Securities Lending Portico Benefit Services engages in securities lending whereby certain securities in its portfolio are loaned to other institutions, generally for short periods of time. Portico Benefit Services also lends securities through Tri Party Agreements. These Tri Party Agreements are within the scope of Portico Benefit Services securities lending practice. Under these Tri Party Agreements, Portico Benefit Services does not have ownership rights of the collateral received and Portico Benefit Services is indemnified of any losses incurred by lending securities through a Tri Party agreement. The non cash collateral asset and the related obligation to return the collateral are not recorded in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations. At Dec. 31, 2015 the market value of the securities loaned to brokers was $1,153,753,000 of which $434,474,000 was lent through Tri Party Agreements. At Dec. 31, 2014 the market value of the securities loaned to brokers was $1,344,905,000 of which $589,834,000 was lent through Tri Party Agreements. The following table presents the total amount of securities loaned with continuous maturity, by type, offset by the gross payable upon return of securities loaned by Portico Benefit Services as of December 31, Agencies/Other Govt Corporate Equity TIPS U.S. T-Bonds U.S. T-Notes Total Lending SECURITIES LENDING TRANSACTIONS TOTAL 3,214, ,162, ,872,000 44,631,000 3,049,000 50,351, ,279,000 Gross amount payable upon return of collateral for securities loaned 744,576,000 Net amounts due to counterparty 25,297,000 Fees are earned by Portico Benefit Services for participating in this program, which is administered by Portico Benefit Services custodial bank, BNY Mellon Trust (the lending agent). By the end of the business day on which securities are delivered to the borrower, collateral equal to 102% of the market value of a loaned U.S. security and/or 105% of a non U.S. security, including any accrued interest, is obtained from the borrower. After the initial settlement, collateral greater than 100% is maintained. Total securities lending income received by Portico Benefit Services was $4,148,000 for the year ended Dec. 31, 2015 and $3,967,000 for the year ended Dec. 31, 2014 and is recorded as other investment gain (loss) on the accompanying Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations. In accordance with ASC Topic 860 Transfers and Servicing, Portico Benefit Services accounts for its securities lending transactions as secured borrowings, in which the collateral received and the related obligation to return the collateral are recorded at fair value in the Statements of Net Assets Available for Plan Benefits and Benefit Obligations. 46

49 Although Portico Benefit Services securities lending program involves certain credit risks, Portico Benefit Services believes the high quality of the collateral received (primarily cash and money market instruments), collateral levels initially received being greater than 100% of securities loaned to brokers and Portico Benefit Services monitoring policies and procedures mitigate the likelihood of material losses under these arrangements. At Dec. 31, 2015 collateral received was primarily invested in agencies, floating rate and asset backed notes, and repurchase agreements. Market conditions affect the value of these investments and therefore impact the realized and unrealized gains or losses incurred by Portico. Additionally, fluctuations in the market value may result in the collateral coverage level temporarily being less than 100%. In the event that the invested collateral declines in value and the borrower defaults, a loss could exist. If a borrower defaults, Portico has the right to offset losses with the collateral received. Additionally, some of these losses may be indemnified by Portico s custodian based on the type of collateral. Note 8 Current and Future Benefit Obligations In 2015, Portico Benefit Services used updated mortality assumptions valued on the basis of the RP-2014 sex distinct white collar mortality rates with a multiplier projected forward using projection scale MP The revised mortality assumptions reflect lower life expectancy improvements based on data released by the Social Security Administration and other various studies, compared to the study published in 2014 (MP 2014). The adoption of these new tables resulted in a decrease to our projected benefit obligations of $47.2 million as of Dec. 31, ELCA Retirement Plan Benefit Obligation All members have individual account balances that represent the accumulation of all earnings and contributions made on their behalf, less any withdrawals. The ELCA Retirement Plan benefit obligation for these members is the sum of their account balances. The investment of these funds is member directed. Members are immediately and fully vested in their account balances at all times. ELCA Participating Annuity Investment Fund Obligation For those members who have annuitized their accounts, the annuity payments for 2015 are valued on the basis of the RP-2014 sex distinct white collar mortality rates with a multiplier projected forward using projection scale MP The annuity payments for 2014 were valued on the basis of the RP2000 White Collar (male) mortality table projected to 2008 using projection scale AA, with ages set back one year for members and eight years for spouses, with provision for generational improvement thereafter based on projection scale AA. Due to this change, you will see a change from the 2014 table. The actuarial method used to determine the actuarial liability is the accrued benefit method. Under this method, the actuarial liability for retired members and survivors currently receiving benefits is determined as the actuarial present value of benefits expected to be paid, using the actual age of the retirees. To the extent that the benefit obligation under this method may differ from the fair value of the assets, the Statements of Net Assets Available for Plan Benefits and Benefit Obligations will reflect an excess or shortfall in the plan. Members with annuity contracts participate in the investment performance of the fund. If there is an excess of net assets over the benefit obligation, annuity payments may potentially increase (or interest crediting rates may exceed 4.5%). If there is a shortfall of net assets over benefit obligation, annuity payments may potentially decrease (or interest crediting rates may be less than 4.5%). 47

50 Notes to Financial Statements (Dec. 31, 2015 & 2014) The investment of the funds supporting the obligation for annuities is determined by Portico Benefit Services. The expected long term rate of return of these funds was approximately 6.63% at Dec. 31, 2015 and 6.88% at Dec. 31, However, for purposes of calculating the plan obligation, a 4.5% return was assumed at Dec. 31, 2015 and at Dec. 31, For those members who have ELCA Participating Annuity Bridge Accounts but have not yet annuitized their accounts, the obligation is the sum of the amounts transferred from the ELCA Retirement Plan and contributed to the ELCA Participating Annuity Bridge Accounts plus credited interest which may, during times of substantial or extended losses or under performance in the markets, be negative causing bridge account balances to decrease. Interest rates to be credited to the bridge accounts are approved by the board of trustees of Portico Benefit Services. The change in the actuarial present value of benefit obligation for retired plan members for the year ended Dec. 31, 2015 and the year ended Dec. 31, 2014 is shown in the following chart. (Dollars in Thousands) BENEFIT OBLIGATIONS FOR RETIRED PLAN MEMBERS ELCA Participating Annuity Investment Fund obligation at beginning of year, excluding ELCA Participating Annuity Bridge Accounts Increase (decrease) during the year due to: Interest Benefits accumulated and experience changes Benefits payments and withdrawals Change in actuarial assumptions Period beneficiary liability Net increase ELCA Participating Annuity Investment Fund obligation at end of year, excluding ELCA Participating Annuity Bridge Accounts ELCA Supplemental Retirement Benefits Trust Total benefit obligation for retired plan members 1,990,680 86, ,307 (191,256) (46,690) 780 (39,143) 1,951, ,952,181 1,941,929 86, ,001 (184,716) (55) 48,751 1,990, ,991,616 The chart below contains annuity benefits expected to be paid to current annuitants under the ELCA Participating Annuity Investment Fund. YEAR (Dollars in Thousands) YEAR (Dollars in Thousands) , , , , , ,931 48

51 ELCA Benefits Contribution Trust Benefit Obligation The ELCA Benefits Contribution Trust benefit obligation represents the portion of the actuarial present value of estimated future post retirement medical benefits (less the present value of federal reimbursements and retiree contributions) that is attributable to employee service rendered through Dec. 31, 2015 and Dec. 31, 2014, respectively, for certain categories of members (including their beneficiaries and dependents) as shown in the chart below. (Dollars in Thousands) ELCA BENEFITS CONTRIBUTION TRUST BENEFIT OBLIGATION DEC. 31, 2015 DEC. 31, 2014 Current retirees 144, ,520 Other members fully eligible for benefits 2,288 3,484 Total 146, ,004 The chart below contains ELCA subsidies expected to be paid on behalf of current and future retirees from the ELCA Benefits Contribution Trust. The ELCA subsidies are net of retiree drug reimbursements for Medicare beneficiaries covered by the plan expected to be received from the federal government under the Patient Protection and Affordable Care Act of 2010 (PPACA) and the Medicare Modernization Act of 2003 (Medicare Part D). The reimbursements amounted to $12,876,000 for the 2015 plan year ended Dec. 31, 2015 and $11,081,000 for the 2014 plan year ended Dec. 31, 2014 (reimbursements from Medicare Part D only). YEAR ELCA BENEFITS CONTRIBUTION TRUST WITH MEDICARE PART D REIMBURSEMENTS (Dollars in Thousands) ELCA BENEFITS CONTRIBUTION TRUST WITHOUT MEDICARE PART D REIMBURSEMENTS ,728 10, ,588 11, ,397 11, ,139 12, ,847 12, ,204 63,840 Health care costs are assumed to increase in future years. The expected rates at which health care costs will increase in future years are derived from ELCA primary and Medicare primary plan member experience, with guidance from public insurance sources. 49

52 Notes to Financial Statements (Dec. 31, 2015 & 2014) The assumed rates of increase used in 2015 and 2014 are shown in the chart below. PRE-AGE 65 COST (%) POST-AGE 65 COST (%) 2015 Rate of increase for Ultimate rate Year ultimate rate reached Rate of increase for Ultimate rate Year ultimate rate reached If the assumed health care cost trend rate increased by one percentage point, net of federal reimbursements, in each year, the obligation would increase by $12,460,000 at Dec. 31, 2015 and by $14,031,000 at Dec. 31, If the assumed health care cost trend rate decreased by one percentage point, net of federal reimbursements, in each year, the obligation would decrease by $10,904,000 at Dec. 31, 2015 and by $12,167,000 at Dec. 31, The following are other significant assumptions used in the valuations at Dec. 31, 2015 and Dec. 31, 2014, based on the assumption the plan will continue: valuation interest rate: 3.83% for 2015, 3.55% for 2014 average retirement age: 65 years mortality: RP-2014 sex distinct white collar mortality rates with a multiplier projected forward using projection scale MP-2014 for 2015 mortality: RP2000 White Collar (male) mortality table projected to 2008 using projection scale AA, with ages set back one year for members and eight years for spouses, with provision for generational improvement thereafter based on projection scale AA for

53 The change in the actuarial present value of the ELCA Benefit Contribution Trust benefit obligation, including the result of actuarial changes, for the year ended Dec. 31, 2015 and for the year ended Dec. 31, 2014, is shown in the chart below. The chart also reflects the obligation of the other benefit plans as reported for the year ended Dec. 31, 2015 and for the year ended Dec. 31, (Dollars in Thousands) DEC. 31, 2015 DEC. 31, 2014 ELCA Benefits Contribution Trust obligation at beginning of year 156, ,504 Interest Transfers and benefits paid during the year Change in actuarial assumptions and other (gains) losses during the year ELCA Benefits Contribution Trust obligation at end of year ELCA Disability Benefits Plan ELCA Survivor Benefits Plan ELCA Health Plan ELCA Flexible Benefits Plan All other funds Total other obligations at end of year Test 5,274 (12,737) (2,151) 146,390 60,799 71,975 14, ,897 6,336 (12,787) 13, ,004 66,798 83,026 17, ,998 Benefit Obligations Other Other plan benefit obligations at Dec. 31, 2015 and Dec. 31, 2014 for health claims incurred but not paid at that date are actuarially determined and included in other obligations of the respective plans on the accompanying Statements of Net Assets Available for Plan Benefits and Benefit Obligations. See the chart above. The obligations for the ELCA Supplemental Retirement Benefits Trust, Survivor Benefits Plan and future disability payments to members considered totally disabled are also actuarially determined. Estimated obligations are reported at present value based on the discount rates in the chart below. DEC. 31, 2015 (%) DEC. 31, 2014 (%) Supplemental Retirement Benefits Trust Disability Benefits Plan Survivor Benefits Plan Note 9 Income Taxes Portico Benefit Services is a 501(c)(3) tax exempt organization, and therefore, no provision for income taxes is included in the financial statements. To the extent that certain investments in real estate partnerships and private equity partnerships generate income, Portico Benefit Services pays state and federal taxes under the unrelated business taxable income provisions of the Internal Revenue Code (IRC). These taxes are reflected as direct investment expenses and included in investment expense in the Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations. Portico Benefit Services incurred $403,000 in tax expense for the year ended Dec. 31, 2015 and $109,000 for the year ended Dec. 31, The tax years 2012 through 2015 are currently open for examination. 51

54 Notes to Financial Statements (Dec. 31, 2015 & 2014) For the years ended Dec. 31, 2015 and Dec. 31, 2014, Portico Benefit Services complied with ASC Topic 740. This section of the code addresses the accounting for uncertainty in income taxes recognized on financial statements for a tax position taken on a tax return. These positions must meet a more likely than not standard that based on the technical merits they have a more than 50% likelihood of being sustained upon examination. In evaluating whether a tax position has met the more likely than not recognition threshold, Portico Benefit Services must presume the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. Portico Benefit Services has limited tax reporting exposure due to its nonprofit status and does not have any deferred tax assets or deferred tax liabilities. Management believes Portico Benefit Services tax position meets the more likely than not standard. Note 10 Related Party Transactions Portico Benefit Services received on behalf of the ELCA Benefits Contribution Trust $2,500,000 for each of the years ended Dec. 31, 2015 and Dec. 31, 2014 from the ELCA for retiree medical contribution subsidies, which are included as other contributions on the accompanying Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations. Portico Benefit Services received on behalf of the ELCA Special Needs Retirement Fund $582,000 for the year ended Dec. 31, 2015 and $356,000 for the year ended Dec. 31, 2014 from the ELCA for the payment of financial assistance benefits to eligible retired church workers and their spouses, which are included as other contributions in the All Other Funds column of the accompanying Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations. Portico Benefit Services also received investment management fees of $355,000 for the year ended Dec. 31, 2015 and $345,000 for the year ended Dec. 31, 2014 for managing certain investments for the ELCA Foundation in its unitized pools. These fees are included as a reduction of general and administrative expenses on the accompanying Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations. Note 11 Subsequent Events and Legal Proceedings Subsequent Events Portico Benefit Services has evaluated through May 24, 2016, subsequent events which occurred after the Statement of Net Assets Available for Plan Benefits and Benefit Obligations date but before these statements are issued. Portico Benefit Services has concluded that no other events or transactions have occurred that would require adjustments to, or disclosures in, the financial statements. 52

55 Legal Proceedings Portico Benefit Services, in the normal course of business, may from time to time be involved in legal or regulatory proceedings concerning matters arising in connection with its business activities. The outcome of any potential, unforeseen claims is inherently difficult to predict. On March 5, 2015, a purported class action lawsuit was filed against Portico Benefit Services in Minnesota State Court (Hennepin County) Pastor David Bacon, Pastor Timothy Hepner, Ruth Dold, and Sharon Hvam v. Board of Pensions of the Evangelical Lutheran Church in America (D/B/A Portico Benefit Services). The claims in the complaint relate to services we provide to the ELCA Retirement Plan and the ELCA Retirement Plan for The Evangelical Lutheran Good Samaritan Society. It alleges and seeks remedies related to the fees for investment and administration of the plans and the selection of ELCA investment funds. On Oct. 13, 2015, Portico s motion to dismiss this lawsuit was granted. On Dec. 14, 2015, an appeal of the case dismissal was made by the named plaintiffs, Pastor David Bacon, Pastor Timothy Hepner, Ruth Dold, and Sharon Hvam, to the Court of Appeals of the State of Minnesota. While the occasional lawsuit is a reality in any industry, Portico disagrees strongly with the allegations in this complaint and is vigorously defending itself. At present, management is unaware of any other material, unforeseen claims that may potentially impact Portico Benefit Services Statement of Net Assets Available for Plan Benefits and Benefit Obligations or the Statements of Changes in Net Assets Available for Plan Benefits and Benefit Obligations as of Dec. 31,

56 2015 PLAN ACTIVITY BY FUND Plan Activity by Fund for the Year Ended Dec. 31, 2015 (Dollars in Thousands) Beginning-of-Year Balance Contributions Net Investment Gain (Loss) SELECT SERIES 80e Balanced Fund 120,035 3,930 (1,379) Social Purpose 80e Balanced Fund 72,650 3,203 (825) 60e Balanced Fund 1,593,376 55,428 (19,308) Social Purpose 60e Balanced Fund 582,347 10,833 (7,297) 40e Balanced Fund 248,981 1,971 (2,635) Social Purpose 40e Balanced Fund 141,359 1,485 (1,454) Total Select Series 2,758,748 76,850 (32,898) BUILD-YOUR-OWN SERIES Global Stock Fund 440,709 6,956 (2,710) Social Purpose Global Stock Fund 276,790 5,290 (2,303) Non-U.S. Stock Fund 34, (788) Social Purpose Non-U.S. Stock Fund 21, (704) U.S. Stock Fund 75,666 1,378 (388) Social Purpose U.S. Stock Fund 46, (379) Social Purpose Stock Index Fund 36, (65) S&P 500 Stock Index Fund 124,826 1,926 1,391 Small- and Mid-Cap Stock Index Fund 122,431 2,390 (3,909) Global Real Estate Securities Fund 59,869 1, High-Yield Bond Fund 55, (1,395) Bond Fund 134,658 1, Social Purpose Bond Fund 77,769 1, Money Market Fund 114,508 1, Total Build-Your-Own Series 1,621,410 28,086 (10,169) Total ELCA Retirement Plan 4,380, ,936 (43,067) ELCA PARTICIPATING ANNUITY INVESTMENT FUND ELCA SUPPLEMENTAL RETIREMENT BENEFITS TRUST ELCA INSTITUTIONAL RETIREMENT PLANS 2,190,811 3, ,283 24,777 (13,302) 1 (2,909) Total Retirement Plans 6,895, ,713 (59,277) ELCA DISABILITY BENEFITS PLAN ELCA SURVIVOR BENEFITS PLAN ELCA HEALTH PLAN ELCA FLEXIBLE BENEFITS PLAN ELCA BENEFITS CONTRIBUTION TRUST ALL OTHER FUNDS Total Funds* 105, ,457 47, ,820 16,369 7,285,810 16,572 7, ,294 6,778 7, ,297 (525) (993) (1,367) (956) 19 (63,099) * The amounts listed in the Total Funds Line for each column are audited. The accompanying notes beginning 18 are an integral part of the financial statements. 54

57 55 Benefit Payments Withdrawals Transfers & Adjustments General Administrative Expenses and Life Insurance Premiums End-of-Year Balance Benefit Obligations Excess (Shortage) (191,256) (168) (191,424) (11,811) (4,089) (191,918) (6,499) (12,737) (593) (419,071) (5,455) (1,880) (79,126) (17,257) (14,586) (6,114) (124,418) (17,314) (6,722) (1,464) (656) (3,350) (2,287) (1,647) (6,850) (5,169) (2,487) (2,839) (7,937) (3,285) (12,209) (74,216) (198,634) (31,548) (230,182) (230,182) (4,394) (2,826) (52,247) (25,685) 15,223 2,805 (67,124) (29,343) (17,091) (1,175) 2, ,599 7,057 3,151 (2,381) 770 (4,350) 8,360 4,271 11,502 (14,944) (82,068) 82,213 (145) (9,710) 9,710 (204) 204 (392) (242) (5,215) (1,908) (836) (475) (9,068) (1,419) (904) (116) (79) (253) (155) (133) (413) (402) (207) (176) (431) (252) (386) (5,326) (14,394) (6,329) (16) (1,926) (22,665) (2,046) (4,785) (22,050) (83) (490) (52,119) 112,345 70,080 1,492, , , ,606 2,602, , ,060 32,214 22,690 73,738 46,150 42, , ,960 59,589 47, ,857 80, ,222 1,544,841 4,146,931 2,062,137 3, ,532 6,521,708 97, ,690 38, ,346 16,130 6,885, ,345 70,080 1,492, , , ,606 2,602, , ,060 32,214 22,690 73,738 46,150 42, , ,960 59,589 47, ,857 80, ,222 1,544,841 4,146,931 1,987, ,532 6,444,993 60,799 71,975 14, , ,739,890 74,251 2,464 76,715 36,723 37,715 23,817 (308) (45,044) 16, ,746

58 2014 PLAN ACTIVITY BY FUND Plan Activity by Fund for the Year Ended Dec. 31, 2014 (Dollars in Thousands) Beginning-of-Year Balance Contributions Net Investment Gain (Loss) SELECT SERIES 80e Balanced Fund 112,616 3,670 6,324 Social Purpose 80e Balanced Fund 73,621 3,007 4,131 60e Balanced Fund 1,581,589 54,448 93,326 Social Purpose 60e Balanced Fund 579,438 11,137 34,600 40e Balanced Fund 233,798 2,154 14,245 Social Purpose 40e Balanced Fund 134,679 1,538 7,659 Total Select Series 2,715,741 75, ,285 BUILD-YOUR-OWN SERIES Global Stock Fund 457,400 7,410 23,606 Social Purpose Global Stock Fund 277,891 5,440 15,066 Non-U.S. Stock Fund 37, (1,379) Social Purpose Non-U.S. Stock Fund 23, (771) U.S. Stock Fund 68,674 1,407 8,695 Social Purpose U.S. Stock Fund Social Purpose Stock Index Fund S&P 500 Stock Index Fund Small- and Mid-Cap Stock Index Fund Global Real Estate Securities Fund High-Yield Bond Fund Bond Fund Social Purpose Bond Fund Money Market Fund 36,774 25, , ,665 53,596 58, ,783 72, , ,683 2,445 1, ,067 1,428 1,682 5,116 3,752 13,879 8,923 9,246 1,445 7,879 4, Total Build-Your-Own Series Total ELCA Retirement Plan 1,591,535 4,307,276 28, ,487 99, ,193 ELCA PARTICIPATING ANNUITY INVESTMENT FUND ELCA SUPPLEMENTAL RETIREMENT BENEFITS TRUST ELCA INSTITUTIONAL RETIREMENT PLANS 2,188,474 3, ,176 23, , ,502 Total Retirement Plans 6,805, , ,040 ELCA DISABILITY BENEFITS PLAN ELCA SURVIVOR BENEFITS PLAN ELCA HEALTH PLAN ELCA FLEXIBLE BENEFITS PLAN ELCA BENEFITS CONTRIBUTION TRUST ALL OTHER FUNDS 120, ,496 65, ,404 15, , ,217 6,161 7, ,165 6, ,941 4 Total Funds* 7,220, , ,206 * The amounts listed in the Total Funds Line for each column are audited. The accompanying notes beginning 18 are an integral part of the financial statements. 56

59 57 Benefit Payments Withdrawals Transfers & Adjustments General Administrative Expenses and Life Insurance Premiums End-of-Year Balance Benefit Obligations Excess (Shortage) (184,716) (197) (184,913) (11,984) (4,202) (185,347) (5,639) (12,786) (427) (405,298) (3,980) (1,880) (80,150) (19,489) (15,667) (6,263) (127,429) (18,400) (7,411) (1,945) (803) (3,193) (1,497) (1,145) (5,633) (5,266) (2,515) (3,515) (7,695) (3,388) (13,477) (75,883) (203,312) (25,254) (228,566) (228,566) 1,795 (5,979) (50,487) (21,365) 15,269 4,198 (56,569) (27,802) (13,261) (80) (592) 315 5,566 7,690 14,713 (9,921) (1,550) (1,926) 2,044 3,094 4,367 (17,343) (73,912) 73,912 (8,706) 8,706 (43) 43 (390) (250) (5,350) (1,974) (818) (452) (9,234) (1,505) (935) (127) (76) (232) (138) (100) (368) (415) (187) (202) (420) (237) (398) (5,340) (14,574) (5,991) (24) (2,691) (23,280) (1,782) (4,570) (22,435) (82) 1,154 (50,995) 120,035 72,650 1,593, , , ,359 2,758, , ,790 34,968 21,511 75,666 46,530 36, , ,431 59,869 55, ,658 77, ,508 1,621,410 4,380,158 2,190,811 3, ,283 6,895, , ,457 47, ,820 16,369 7,285, ,035 72,650 1,593, , , ,359 2,758, , ,790 34,968 21,511 75,666 46,530 36, , ,431 59,869 55, ,658 77, ,508 1,621,410 4,380,158 2,039, ,283 6,741,989 66,798 83,026 17, , ,065, ,199 2, ,554 38,244 29,431 30,603 (187) (48,184) 16, ,823

60 Independent Auditor s Report To the Board of Trustees of the Board of Pensions of the Evangelical Lutheran Church in America (d/b/a Portico Benefit Services) We have audited the accompanying Total Funds amounts in the combined statements of net assets available for plan benefits and benefit obligations as of December 31, 2015 and 2014, and the related Total Funds amounts in the combined statements of changes in net assets available for plan benefits and benefit obligations for the years then ended. Management s Responsibility for the Combined Financial Statements Management is responsible for the preparation and fair presentation of the combined 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 combined financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on the Total Funds amounts in the combined 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 Total Funds amounts in the combined financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to Portico Benefit Services preparation and fair presentation of the combined 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 Portico Benefit Services 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 combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the Total Funds amounts in the combined financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits and benefit obligations of Portico Benefit Services as of December 31, 2015 and 2014, and changes in net assets available for plan benefits and benefit obligations for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Our audits were conducted for the purpose of forming an opinion on the Total Funds amounts in the combined financial statements taken as a whole. The Supplemental Schedules of Plan Activity by Fund for the years ended December 31, 2015 and 2014 are presented for purposes of additional analysis and are not a required part of the combined financial statements. The information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the combined financial statements. The information has been subjected to the auditing procedures applied in the audit of the combined financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the combined financial statements or the combined financial statements themselves and other additional procedures, in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the Total Funds amounts in the combined financial statements taken as a whole. 58 Minneapolis, Minnesota May 24, 2016 PricewaterhouseCoopers LLP, Suite 1400, 225 South Sixth Street, Minneapolis, MN T: (612) , F: (612) ,

61 Trustees and Leadership Team Front row, left to right: Dr. Bruce E. Johnson, Leon J. Schwartz, Pamela S. Moench, Peter J. Enko Middle row, left to right: Raye Nae D. Nylander, William J. Falk, Janette E. Drew, the Rev. Dr. Marty E. Stevens, Gregory W. Heidrich, Dianne Witte, Jill A. Schumann, Lisa A. Kro, Kathleen K. Mooney, Diana G. Haywood Back row, left to right: the Rev. Paul W. Stumme-Diers, the Rev. Jeffrey D. Thiemann, John R. Hoffman Executive Committee 1, 2, 3, 4*, 5, 6, 7 Gregory W. Heidrich Chairperson 1, 4, 5*, 6 Peter J. Enko Vice Chairperson 2*, 3, 4, 6 Raye Nae D. Nylander At-large member 4, 5, 7 Lisa A. Kro At-large member 2, 4, 5, 6 Leon J. Schwartz Secretary Board of trustees committees: *Chair 3. Board Development 1. Appeals 4. Executive 2. Audit 5. Finance 6. Investment / Corporate Social Responsibility 7. Products and Services 59