- PDF Free Download

Size: px

Start display at page:

Download ""

Ronald Summers
5 years ago
Views:

100

101

102

103

104

105

106

107

108

109

110

111

112

113

114

115

116

117

118

119

120

121

122

123

124

125

126

127

128

129

130

131

132

133

134

135

136

137

138

139

140

141

142

143

144

145

146

147

148

149

150

151

152

153

154

155

156

157

158

159

160

161

162

163

164

165

166

167

168

169

170

171

172

173

174

175

176

177

178

179

180

181

182

183

184

185

186

187

188

189

190

191 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH A NONPROFIT ORGANIZATION CONSOLIDATED FINANCIAL STATEMENTS MODIFIED CASH BASIS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (WITH INDEPENDENT AUDITORS REPORT THEREON)

192 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH TABLE OF CONTENTS INDEPENDENT AUDITORS REPORT 3 PAGE FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION - MODIFIED CASH BASIS 4 STATEMENT OF CENTRAL FUND CASH RECEIPTS AND DISBURSEMENTS MODIFIED CASH BASIS 5 CONSOLIDATED STATEMENT OF CASH RECEIPTS, CASH DISBURSEMENTS AND OTHER CASH CHANGES IN NET ASSETS - MODIFIED CASH BASIS 6 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7-16

193 INDEPENDENT AUDITORS REPORT Pacific Northwest Annual Conference Of the United Methodist Church Des Moines, WA We have audited the accompanying consolidated statement of financial position modified cash basis of the Pacific Northwest Annual Conference of the United Methodist Church (the Conference) as of December 31, 2011, and the related statements of central fund cash receipts and disbursements modified cash basis, and the consolidated statement of cash receipts, cash disbursements and other cash changes in net assets modified cash basis for the years ended December 31, These consolidated financial statements are the responsibility of the Conference s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The prior year summarized comparative information has been derived from the Conference s 2010 audited financial statements which are presented on the basis of accounting described in Note 1. 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 consolidated financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. As described in Note 1, these financial statements were prepared on the modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated assets, liabilities and net assets arising from cash transactions of the Pacific Northwest Annual Conference of the United Methodist Church as of December 31, 2011 and 2010, and its cash receipts and disbursements, and changes in net assets for the years ended December 31, 2011, on the basis of accounting described in Note 1. Lindley and Company LLC August 7, 2012

194 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH Consolidated Statement Of Financial Position - Modified Cash Basis December 31, 2011 (With Comparative Totals for 2010) Assets General Fund Central Fund Board of Congregational Development Board of Pensions Board of Trustees Camping Board of Stewards Camp and Retreat Ministries Office of Connectional Ministry United Methodist Foundation Interfund Eliminations 2011 Total 2010 Total Cash and short-term investments $ (127,000) $ 1,140,477 $ 1,220,804 $ 123,803 $ 2,108,727 $ 135,347 $ 200,747 $ 95,495 $ 3,756,056 $ - $ 8,654,456 $ 7,396,010 Marketable securities (Note 2) ,902,555 18,902,555 21,297,437 Due from other fund 126, , (128,955) - Notes receivable from local churches 1,803, ,254,182 (26,966) 7,031,070 5,915,786 Note and real estate contracts receivable 332,989 25, ,885 42,244 Deposits with General Board of Pensions (Note 3) 0 10,519,746 10,519,746 10,894,927 Deposits with the United Methodist Development Fund 600, , ,000 1,000,000 1,000,000 Deposits with the United Methodist Foundation NW 500, ,499 20, ,230 (1,270,651) (120,030) 0 Property and buildings 100 2,553,173 3,261, , ,805 6,527,648 6,529,534 Other assets 423, , ,209 Total Assets $ 1,099,658 $ 1,383,976 $ 3,024,758 $ 10,643,549 $ 5,115,781 $ 4,108,602 $ 719,485 $ 95,495 $ 28,533,295 $ (1,426,572) $ 53,298,027 $ 53,487,147 Liabilities And Net Assets Liabilities: Trust funds held for others $ - $ - $ - $ - $ - $ - $ - $ - $ 22,059,523 $ (1,270,651) $ 20,788,872 $ 21,219,471 Due to other fund 126,658-2,297 - (128,955) - Other liabilities (342) 14,205 13,863 13,298 Notes payable 104,534 (26,966) 77,568 29,873 Total Liabilities 126, ,831-22,073,728 (1,426,572) 20,880,303 21,262,642 Commitments and contingencies (Note 4) Net Assets: Unrestricted - Designated by Conference 352,347 1,342,355 3,024, ,803 2,553, ,461 5,692 (3,534) 7,820,610 7,431,103 Designated by agency 26,882 8,780 36, , , , ,708 Designated for endowments 108,963 67, , ,908 Set aside for pension funding 10,519, ,519,746 10,894,927 Property and buildings 100 2,553,173 3,261, , ,805 6,511,950 6,529,534 Undesignated 485,150 46,009 (200,600) (6,021) 2,189,696 2,514,234 2,395,329 Temporarily restricted - - Designated by donor 41, , , ,537 Life estates and other trust funds 2,284,431 2,284,431 2,186,338 Permanently restricted - endowments 0 1,788,635 1,788,635 1,792,121 Total Net Assets 973,342 1,383,976 3,024,758 10,643,549 5,115,781 4,108, ,654 95,495 6,459,567 32,417,724 32,224,505 Total Liabilities And Net Assets $ 1,099,658 $ 1,383,976 $ 3,024,758 $ 10,643,549 $ 5,115,781 $ 4,108,602 $ 719,485 $ 95,495 $ 28,533,295 $ (1,426,572) $ 53,298,027 $ 53,487,147 See accompanying notes to financial statements

195 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH Statement Of Central Fund Cash Receipts And Disbursements - Modified Cash Basis Year Ended December 31, 2011 (With Comparative Totals for the Year Ended December 31, 2010) Balance, January 1, 2011 Receipts and Transfers Disbursements and Transfers Balance, December 31, 2011 Pension and Benefit Fund $ - $ 590,900 $ (590,900) $ - Ministerial support and administration 404,776 2,208,860 (2,265,764) 347,872 World Service and Conference 201,668 2,472,202 (2,417,859) 256,011 Benevolences Ministerial Education and 391, ,662 (224,136) 388,476 Black College Fund Africa University & Mission Initiatives Fund - 15,156 (15,156) - District funds - 424,766 (424,766) - Other benevolences, gifts, and offerings 457, ,256 (823,266) 391,617 Total, 2011 $ 1,456,021 $ 6,689,802 $ (6,761,847) $ 1,383,976 Total, 2010 $ 1,648,705 $ 6,739,708 $ (6,932,392) $ 1,456,021 See accompanying notes to financial statement - 5 -

196 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH Consolidated Statement Of Cash Receipts, Cash Disbursements, And Other Cash Changes In Net Assets - Modified Cash Basis Year Ended December 31, 2011 (With Comparative Totals for the Year Ended December 31, 2010) General Fund Central Fund Board of Congregational Development Board of Pensions Board of Trustees Camping Board of Stewards Camping and Retreat Ministries Office of Connectional Ministry United Methodist Foundation Interfund Eliminations 2011 Total 2010 Total Cash receipts $ 2,236,866 $ 6,170,140 $ 66,649 $ 3,773,930 $ 388,914 $ 429,899 $ 1,560,640 $ 130,787 $21,279,586 $ 351,907 $ 36,389,318 $ 35,157,610 Interfund transfers, net 136,403 (1,496,112) (739,646) 925, ,404 6,713 (3,661) 725, ,373,269 4,674,028 (672,997) 4,698, , ,612 1,556, ,632 21,279, ,907 36,389,318 35,157,610 Cash disbursements 2,500,269 4,746, ,510 4,667, , ,883 1,550, ,823 19,757,843 35,130,872 36,013,669 Increase (Decrease) in Cash (127,000) (72,045) (902,507) 31, ,255 (30,271) 6,707 (44,191) 1,521, ,907 1,258,446 (856,059) Other Changes in Net Assets: Increase (Decrease): Marketable securities (243,498) 20,892 (2,151,384) (2,373,991) 2,394,713 Due from other funds (224,927) 0 0 2, ,630 0 (1,150,807) Notes and contracts receivable 0 249, , ,076 6,191 1,433,273 (632,718) Deposits with General Board of Pensions 0 (375,181) (1,348) (384,421) (760,950) 2,265,983 Deposits with UM Development Fund Deposits with UM Foundation of the NW 243, ,499 0 Property and buildings 0 (1,886) - (1,886) (107,882) Other assets 12,488-12,488 (23,933) Trust funds held for others 0 46,178-46,178 (690,163) Due to other funds 574,581 0 (44) 384, ,958 (248,459) Other liabilities 0 0 (565) (574,537) (575,102) 1,079,451 Notes payable (41,504) (6,191) (47,695) 113, , ,017 (375,181) 338,881 0 (40,599) 0 (1,235,093) (351,907) (1,065,228) 2,999,305 Net Change in Net Assets 222,654 (72,044) (653,490) (343,333) 861,136 (30,271) (33,892) (44,191) 286, ,218 2,143,246 Net Assets: Beginning of year 750,688 1,456,020 3,678,248 10,986,882 4,254,645 4,138, , ,686 6,172, ,224,505 30,081,259 End of Year $ 973,342 $ 1,383,976 $ 3,024,758 $ 10,643,549 $ 5,115,781 $ 4,108,602 $ 612,654 $ 95,495 $ 6,459,567 $ - $ 32,417,724 $ 32,224,505 See accompanying notes to financial statements

197 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 Note 1 - Description of Organization and Summary of Significant Accounting Policies The consolidated financial statements of the Pacific Northwest Annual Conference of the United Methodist Church (the Conference) include the accounts of the Conference and the United Methodist Foundation of the Northwest (the Foundation). The Conference is the United Methodist Church (the Church) regional organization overseeing local churches and Conference organizations located within its geographic bounds - State of Washington and Northern Idaho. The Conference is a legislative body which meets annually with equal clergy and lay representation from its local churches. The Conference operates with a centralized treasury, with the exception of the Foundation where separate records of accounts are maintained. In order to maintain proper accounting for the many organizations, a system of fund accounting is utilized. The primary business of the Conference is to carry out the mission of the Church in this area, which includes a wide range of activities such as credentialing clergy, camping, evangelism, church building development, investment management for local churches, and maintenance of clergy pension and benefit programs. The Foundation is a nonprofit organization incorporated in The purpose of the Foundation is to provide financial assistance to local United Methodist churches, institutions or agencies of the Conference, and to other qualified agencies or organizations as directed by donors. Basis of Accounting: The accompanying financial statements have been prepared on the modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. That basis differs from accounting principles generally accepted in the United States of America primarily because the Conference has not recognized unsecured amounts receivable from outside parties, unsecured amounts payable to vendors and employees, depreciation of fixed assets, and their related effects on the change in net assets. The following provides further detail on treatment of selected accounts in the accounting records. Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Conference and its wholly controlled subsidiary, the United Methodist Foundation. Inter-organization transactions and balances have been eliminated in consolidation. Cash Receipts and Disbursements: The Conference (including the Foundation) maintains its accounting records principally on a cash basis, recording income when received and expenses when paid. To reflect cash receipts and disbursements in the appropriate budget period, the financial statements include certain transactions which occurred during the first two weeks subsequent to year-end and exclude such transactions for the similar period at the beginning of the year

198 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (continued) Note 1 - Description of Organization and Summary of Significant Accounting Policies (continued) Cash and Short-Term Investments: Cash and short-term investments include cash in banks, certificates of deposit, and marketable securities with original maturities of one year or less. The Conference had cash and cash equivalents in excess of FDIC insured limits on deposit in two financial institutions at December 31, 2011 and Fair Value Measurements and Investments: In accordance with accounting principles generally accepted in the United States of America (GAAP), certain assets and liabilities are valued using a fair value hierarchy that prioritizes the inputs to valuation approaches into three broad levels. Level 1 inputs are given the highest priority and are based on unadjusted quoted market prices within active markets. Assets and liabilities valued using Level 2 inputs are based primarily on quoted prices for similar assets or liabilities in active or inactive markets. Assets and liabilities using Level 3 inputs are given the lowest priority and are primarily valued using unobservable inputs such as management s assumptions about the assumptions market participants would utilize in pricing the asset or liability. Valuation techniques utilized to determine fair value are consistently applied. Notes and Real Estate Contracts Receivable and Valuation Reserves: Receivables which are evidenced by secured instruments are included in the financial statements. Valuation reserves are not provided for receivables. It is the policy of the Board of Congregational Development, in some instances, to make loans with terms providing for deferral of principal and/or interest payments. In certain instances, the Board has found it necessary to renegotiate loan terms or to convert loans to grants. Notes receivable of the Board of Congregational Development bear interest at rates ranging from 1% to 9%. The note and contracts receivable held by the Board of Trustees relate to the sale of real estate. The note is secured by a deed of trust on the property. The notes receivable held by the Foundation relate to loans made to churches and church camps bearing interest at rates ranging from 3% to 8%, maturing in one to twelve years, and secured by the corresponding church property. Property and Buildings: Land, buildings and other capital assets are recorded at cost, and no depreciation is provided. Camp land and buildings owned by the Camping Board of Stewards are included in the financial statements except for capital additions and improvements made before January 1, Assets of the Board of Congregational Development include land purchased for new church sites of which the Board may at some future date grant all or part to local churches. Assets of the Foundation are recorded at cost and donated property is recorded at fair market - 8 -

199 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (continued) Note 1 - Description of Organization and Summary of Significant Accounting Policies (continued) value at the date of donation. Expenditures for maintenance, repairs, and renewals are charged to expense as incurred, whereas major purchases are capitalized as additions to fixed assets. Trust Funds: The Foundation has been named trustee for a number of charitable remainder annuity trusts under which a lifetime annuity is paid to the beneficiaries. Upon death of the beneficiaries, the corpus is distributable to the Foundation or other charitable organizations. Endowment Funds: The Foundation, the Camp and Retreat Ministries, and the United Methodist Educational Foundation (General Fund) are recipients of gifts under which the principal is to remain intact in perpetuity and income is to be expended for restricted purposes. Trust Funds Held for Others: The Foundation pools funds from the churches and invests the money in order to earn higher returns. These funds are not owned by the Foundation. Tax Status: The IRS has determined that the Conference and the Foundation are exempt from federal income taxes as defined in Section 501(c) (3) of the Internal Revenue Code and are not private foundations. Conference-owned office equipment and camp facilities are exempt from property taxes. The Conference must file annually for continued exemption. The Conference pays property taxes on the parsonages of it district superintendents and the Episcopal Residence. Prior Year Summarized Information: The financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the financial statements for the Conference for the year ended December 31, 2010, from which the summarized information was derived. Subsequent events: Management of the Organization has evaluated events and transactions occurring after December 31, 2011, through the date of this report, the date the financial statements were available for issuance, for recognition or disclosure in the financial statements. There were no events and transactions that require recognition and disclosures in the financial statements

200 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (continued) Note 2 - Marketable Securities The Conference s investments in equity funds and certificates of deposit traded on the securities exchange are classified within Level 1 of the generally accepted accounting principles fair value hierarchy. Fixed income fund investments are considered with Level 2, as bonds are generally not considered actively traded. The Conference s beneficial interest in perpetual trust(s) are not otherwise traded on a securities exchange and are classified within Level 3 of the fair value hierarchy as the value of these interests are primarily based on the net asset value reported by the trustee of the trust rather than actual market transactions and other observable market data. Marketable securities are presented in the financial statements at fair market value and are composed of the following at December 31: Common stocks $ 14,954,899 $ 7,914,657 Corporate bonds 6,355,292 Certificates of deposit 3,947,656 6,062,423 Mortgage backed securities - 965,065 $ 18,902,555 $ 21,297,437 The following table summarizes the valuation of the Conference s financial investments and interests under the fair value hierarchy as of December 31, 2011: Level 1 Level 2 Level 3 Total Investments Common stocks $ 14,954,899 $ - $ - $ 14,954,899 Corporate bonds - - Certificates of deposit 3,947,656 3,947,656 Mortgage backed securities Total investments before trust 18,902, ,902,555 Beneficial interests in perpetual trust(s) - Permanently restricted endowment 1,788,635 1,788,635 $ 18,902,555 $ - $ 1,788,635 $ 20,691,

201 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (continued) Note 2 - Marketable Securities (continued) The following table summarizes the valuation of the Conference s financial investments and interests under the fair value hierarchy as of December 31, 2010: Level 1 Level 2 Level 3 Total Investments Common stocks $ 7,914,657 $ - $ - $ 7,914,657 Corporate bonds 6,355,292 6,355,292 Certificates of deposit 6,062,423 6,062,423 Mortgage backed securities 965, ,065 Total investments before trust 7,914,657 12,417, ,065 21,297,437 Beneficial interests in perpetual trust(s) - Permanently restricted endowment 1,792,121 1,792,121 $ 7,914,657 $ 12,417,715 $ 2,757,186 $ 23,089,558 The changes in financial investments and interests measured at fair value using Level 3 inputs are reflected below: Balance, beginning of the year $ 1,792,121 $ 1,673,604 Contributions received and recognized 99,182 12,948 Net gain (loss) on beneficial interests in (58,259) 105,569 perpetual trust(s) - - Amount appropriated for expenditures (44,409) Balance, end of the year $ 1,788,635 $ 1,792,121 Marketable securities include the value of charitable remainder unitrusts and charitable remainder annuity trusts for which the Foundation has been named trustee. The unitrust documents provide for the beneficiaries to receive payments from the unitrust of the lesser of net income and/or a specified percent of the trust assets, as valued at the beginning of each trust year. Upon the death of the beneficiaries, the trust assets will transfer primarily to the ownership and control of various named beneficiaries. The Foundation is a named beneficiary for four of the unitrusts. The trust and annuity assets are stated at their fair market value. The trust and annuity obligations reflect the present value of expected maximum annual payments to be remitted as of December 31, 2011 and 2010, adjusting annual payments for the effect of expected increases in the market value of trust assets over the remaining life of the beneficiaries and applying an applicable discount rate

202 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (continued) Note 3 - Pension Plans and Deposits with the General Board of Pension and Health Benefits Ministerial Pension Plan The Conference participates in a pension plan, which covers substantially all ministers appointed to local churches and staff of the Conference, through the General Board of Pension and Health Benefits of The United Methodist Church. The plan in effect through December 31, 1981, was a defined benefit plan, with the required contribution being the responsibility of the Conference. Pension benefits for service rendered prior to January 1, 1982, will be provided at a pension rate based on the number of years of service in the Conference. The base pension rate is projected to increase 3% annually for financial cost planning purposes and additional increases in the rate must be approved by Annual Conference action each year. It is the intention of the Conference to set the past service pension rate each year as needed to maintain the rate at 1% of the Conference s average salary. In 2011, the past service pension rate was 1.05% of Conference average salary. Based on the 2011 annual pension rate of $ per year of service prior to 1982, unfunded past service costs at January 1, 2009 for 2011 were over funded by $2,113,997. Because of this over-funding, no payments were made to this plan in As of January 1, 2010, the unfunded past services cost for 2012 is over funded by $5,580,611, based on the 2012 annual pension rate of $ per year of services prior to The actuarial assumptions used are that fund assets will earn interest at the rate of 7% and that the past service pension rate will increase annually by 3%. Information regarding the accumulated present value of vested benefits and the unvested benefits and the net assets available, for benefits for service prior to January 1, 1982, is not available as the Conference has an undivided interest in the Ministerial Pension Plan (MPP) of the General Board of Pension and Health Benefits. Effective January 1, 1982, a denomination-wide pension plan became the legal successor to all prior plans. The MPP, a Hybrid defined contribution/benefit plan, provides pensions for all service rendered from January 1, 1982 to December 31, 2006, with the required contribution being the responsibility of the salary-paying unit and if not paid was funded by the Annual Conference. There is a potential liability, there was an additional financial obligation in 2011, because at retirement the participant must annuitize at a minimum 65% of their accrued account balance (most annuitize 100%). The actuarial valuation by the General Board as of January 1, 2009 for 2011 shows the funded ratio of the ministerial pension plan annuities for the overall plan at 91% compared to 104% funding ratio for 2012 and preliminary valuation funding ratio of 112% for The annual conference was required to provide additional funding of $399,228 additional financial at the end of 2011; no additional financial contributions will be required in 2012 because of the funding recovery of underlying assets. The additional funding requirements in 2011 were provided through Clergy Retirement Security Program (CRSP) endowment funds accumulated from excess pre-82 pension plan funding

203 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (continued) Note 3 - Pension Plans and Deposits with the General Board of Pension and Health Benefits (continued) These benefits are fully vested to the participant. At the 2004 General Conference of the United Methodist Church, a new pension plan was adopted that became effective January 1, The new pension plan for active clergy has a defined benefit component and a defined contribution component. The defined benefit will be payable at retirement based on 1.25% of the Denomination Average Compensation in effect at the time of retirement times years of credited service after January 1, 2007 until December 31, At the end of each year, each Conference will be required to pay the full cost of this program as estimated by the General Board actuaries (see below). The defined contribution benefit at retirement is based on an account balance comprised of an annual contribution equal to 3% of the clergyperson s plan compensation plus accumulated earnings. On the last business day of the month the General Board credits each active clergyperson s account for 3% of plan compensation. At the 2006 annual conference session, a funding methodology was approved for the new pension plan beginning January 1, 2007, where the local church is required to make the payments for their pastor s defined benefit and defined contribution portion. The funding plan also specifies that the defined benefit portion of monthly payments will be added to a new clergy retirement security endowment fund invested through the General Board of Pension and Health Benefits. The 2011 defined benefit cost of $1,340,498 was paid to the General Board on December 31, This amount was paid from the over funding of the pre-82 plan since the funding ratio (assets over liabilities) remains over 100%. As of January 1, 2010 for 2012, the Core Defined Benefit Part of Clergy Retirement Security Program (CRSP DB) funding ratio is 95%. The 2012 defined benefit cost is $1,282,186. The preliminary 2013 defined benefit cost is $1,305,616 at 109% funding ratio. In 2011 there will not be enough overfunding in the pre-82 pension plan to cover the full cost of the defined benefit cost so the payment from local churches will partially be used to make the payment on December 31, These funds were held in the CRSP endowment fund. Generally accepted accounting principles in the United States of America require an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan. The pension plan is a multiemployer plan, and as such, the Conference is not subject to this standard. United Methodist Personal Investment Plan The cumulative pension and benefit fund for lay employees retirement was replaced in 2006 by the United Methodist Personal Investment Plan (UMPIP). Participants direct the investment of all accounts, including employer contributions. The new plan is more flexible than the prior plan with many more options. The defined contribution portion of the new clergy pension plan is invested in UMPIP starting January 1, Employer contributions for Conference office lay employees to the plan are 8% of compensation and a 2% match and totaled $76,903 and $59,410 for the years ending December 31, 2011 and 2010, respectively

204 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (continued) Note 3 - Pension Plans and Deposits with the General Board of Pension and Health Benefits (continued) The Foundation employees are included in the United Methodist Personal Investment Plan. Contributions are 9% of the employees compensation, with no contribution required from the employees. Contributions to the plan totaled $17,893 and $17,454 for the years ending December 31, 2011 and 2010, respectively. All contributions are fully vested and are invested with the General Board of Pensions and Health Benefits of the United Methodist Church. Comprehensive Protection Plan The Conference also participates in a multi-employer, comprehensive medical group disability and death benefit plan, which covers active appointed clergy for disability and death benefit only for most of its retired ministers, spouses, and surviving spouses of the Conference through the General Board of Pension and Health Benefits of the United Methodist Church. The cost is paid by the salary paying units at 3% of active clergy plan compensation. Health Insurance The Conference participates in a multi-employer group health insurance program for both active clergy and most of its retired ministers, spouses, and surviving spouses of the Conference through the General Board of Pension and Health Benefits of the United Methodist Church. The cost for active clergy is paid by the salary paying unit. Approximately 50% of cost for retired ministers, spouses and surviving spouses is paid by the Conference. Beginning in 2004, all future retirees, except for a few that are grandfathered in under prior health insurance policies (all are now retired), will not have any of their health premium paid by the Conference. The total required Conference contribution for these retired persons for the years ended December 31, 2011 and 2010 was $469,535 and $442,041 respectively. Everyone on Medicare is covered by Medi-Gap program. The Conference s contribution will continue to decline as death of retirees will offset increase in health costs. It is estimated in 2012 that the Conference s share will be $400,000. Benefits Funding Amounts on deposit by the Conference with the General Board of Pension and Health Benefits for benefits funding as of December 31 were as follows: Investments designated for pension/health $ 9,693,289 $ 9,887,925 benefits funding (withdrawn by Conference Action), principal and earnings held at GBOPHB Deposits designated for future funding 826, ,845 including earnings held at GBOPHB Other restricted deposits held at Conference 123,802 91,955 Total assets $ 10,643,548 $ 10,957,

205 PACIFIC NORTHWEST ANNUAL CONFERENCE OF THE UNITED METHODIST CHURCH NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (continued) Note 3 - Pension Plans and Deposits with the General Board of Pension and Health Benefits (continued) These amounts are held in addition to any current funding required by any of the various plans in which the Conference participates. Note 4 - Commitments and Contingencies The Conference Board of Congregational Development is contingently liable as guarantor for year loans aggregating $2,962,502 and $1,984,108 at December 31, 2011 and 2010, made by the United Methodist Development Fund or the National Division of the General Board of Global Ministries to four local churches. Under the terms of the guarantees, the Conference subordinates its initial lien on the local churches properties to the lender. It is management s intent that at the time of a default, the required payments would be made by the Conference and a contingency plan would be developed to cover the remaining loan balance so as to not lose interest in the properties. No amounts for the guarantee liabilities have been included in the financial statements as of December 31, 2011 and 2010, because the financial statements are on a modified cash basis. During 2006, the Conference entered into a 50-year capital lease agreement through 2056, for the lease of office space. The lease agreement calls for rental payments of $1 per year. No long-term in-kind contribution of rent for the land is recognized because the financial statements are on a modified cash basis. In conjunction with this lease agreement, the Conference entered into a development agreement with the lessor for the developing and construction of the office building. The development agreement called for the lessor to pay for 25% of the cost of construction, up to $300,000, with the Conference responsible for the balance. The lessor has full title to the land and building. For the year ended December 31, 2006, the Conference capitalized approximately $1.4 million of construction costs related to these agreements. The Foundation leases its office space under a month to month operating lease with monthly payments of $520. The Foundation incurred rent expense of $6,900 and $6,325 for the years ended December 31, 2011 and 2010, respectively. Note 5 Transfer of Foundation Investments In December 2011, the Foundation liquidated and transferred $7,430,676 in various investment types held in several Morgan Stanley Smith Barney accounts to Wespath Investment Management. Wespath is the investment management division of the General Board of Pension and Health Benefits of the United Methodist Church. The funds were invested in pooled funds in which the Foundation has purchased units. These funds are neither insured nor guaranteed by the government. In May 2012, an additional $4,856,004 was liquidated from various Morgan Stanley Smith Barney accounts and transferred to Wespath Investment Management

206

207

208

209

210

211

212

213

214

215

216

217

218

219

220

221

222

223

224

225

226

227

228

229

230

231

232

233

234

235

236

237

238

239

240

241

242

243

244

245

246

247

248

249

250

251

252

253

254

255

256

257

258

259

260

261

262

263

264

265

266

267

268

269

270

271

272

273

274

275

276

277

278

279

280

281

282

283

284

285

286

287

288

289

290

291

292

293

294

295

296

297

298

299

300

301

302

303

304

305

306

307

308

309

310

311

312

313

314

315

316

317

318

319

320

321

322

323

324

325

326

327

328

329

330

331

332

333

334

335

336

337

338

339

340

341

342

343

344

345

FINANCIAL REPORTS G-1

FINANCIAL REPORTS G-1 CALIFORNIA-PACIFIC ANNUAL CONFERENCE Financial Statements and Supplementary Information with Independent Auditor s Report For the Year Ended G-2 FINANCIAL REPORTS Financial Statements