Lower Colorado River Authority 401(k) Plan Financial Statements

Transcription

1 Lower Colorado River Authority 401(k) Plan Financial Statements March 31, 2016 and 2015

2 Table of Contents Page Independent Auditor s Report 1 Management s Discussion and Analysis Unaudited 3 Statements of Plan Net Position 6 Statements of Changes in Plan Net Position 7 Notes to the Financial Statements 8

3 Independent Auditor s Report To the LCRA Retirement Benefits Board of Trustees Austin, Texas Report on the Financial Statements We have audited the accompanying statements of plan net position of the Lower Colorado River Authority 401(k) Plan (the Plan ) as of March 31, 2016 and 2015, the statements of changes in plan net position for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. AUSTIN HOUSTON SAN ANTONIO 811 BARTON SPRINGS ROAD, SUITE POST OAK BOULEVARD, SUITE N.E. LOOP 410, SUITE 1100 TOLL FREE: AUSTIN, TEXAS HOUSTON, TEXAS SAN ANTONIO, TEXAS WEB: PADGETT CPA.COM

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the plan net position of the Plan as of March 31, 2016 and 2015, and the changes in plan net position for the years then ended, in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require the Management s Discussion and Analysis Unaudited be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Austin, Texas September 16, 2016 Page 2

5 Management s Discussion and Analysis Unaudited This section of the Lower Colorado River Authority s ( LCRA ) 401(k) Plan (the Plan ) financial report presents our discussion and analysis of the Plan s financial performance during Plan years 2016 and The reader should consider the information presented here in conjunction with the financial statements that follow. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the Plan s financial statements, which are comprised of the following: Statements of Plan Net Position presents the Plan s assets and liabilities and the resulting net position, which are held in trust for participants. These statements reflect a year end snapshot of the Plan s investments at fair value, along with receivables, loans to participants, and liabilities. Statements of Changes in Plan Net Position presents the Plan s fiscal year additions to and deductions from the Plan s net position. These two statements report the Plan s net position held in trust for plan benefits. Net position is the difference between assets and liabilities and is one way to measure the Plan s financial position. Over time, increases and decreases in net position are one indicator of whether the Plan s financial health is improving or deteriorating. Notes to the Financial Statements provide additional information that is essential for a full understanding of the data provided in the financial statements. Collectively, this information presents the net position held in trust for plan benefits as of the end of each year and summarizes the changes in net position for the year. FINANCIAL HIGHLIGHTS Plan net position held in trust by the Plan decreased by approximately $6.7 million, or (3.4%), in 2016 and increased by approximately $15.4 million, or 8.4% in Increases in benefits paid to separating and retiring participants and a net depreciation in the value of investments as compared to 2015 contributed to 2016 Plan year net position decrease. Growth in the stock market offset higher levels of terminations and retirements causing the increase in net position in Plan year Contributions increased by approximately $2.1 million, or 13.6%, in 2016 and increased by approximately $900,000, or 6.2%, in Contributions for the 2016 Plan year were increased by the impact of an across the board 4% merit increase implemented in October 2015 and an increase in active participants to the Plan. Page 3

6 Management s Discussion and Analysis Unaudited The amount of benefits paid to retired members, beneficiaries, and terminating employees increased by approximately $7.5 million, or 49.7%, during 2016 and decreased approximately $14.9 million, or 49.5%, during The increase in 2016 can be primarily attributed to higher levels of retirements and terminations while the decrease in 2015 can be primarily attributed to the higher level of retirements and turnover resulting from the effects of Voluntary Severance Program in FINANCIAL ANALYSIS Net Position Information as of March 31 for the Years Indicated Assets Investments at Fair Value $ 185,717,507 $ 192,216,907 $ 177,297,960 Loans to Participants 6,535,289 6,734,716 6,288,807 Total Assets $ 192,252,796 $ 198,951,623 $ 183,586,767 Liabilities Total Liabilities Plan Net Position Held in Trust for Plan Benefits $ 192,252,796 $ 198,951,623 $ 183,586,767 Participant loan activity remains at a high volume with 268 new loans in 2016 and 267 new loans in The total number of loans outstanding was 772 and 845 for 2016 and 2015, respectively. The increase in new loan activity, net of repayment of loans, in 2016 resulted in the $199,427 decrease in loan balances in Total investments were approximately $185.7 million at the end of Plan year 2016, a decrease of approximately $6.5 million, or (3.4%), for the year. Total investments for the Plan year 2015 were approximately $192.2 million, an increase of approximately $14.9 million, or 8.4%, for the year. The Plan s net position decreased by approximately $6.7 million in An increase in benefits paid to separating and retiring participants combined with slight economic turbulence early in 2016, caused the decrease in the change in net position for the period. Page 4

7 Management s Discussion and Analysis Unaudited Changes in Plan Net Position Information as of March 31 for the Years Indicated Additions Contributions $ 17,696,118 $ 15,575,416 $ 14,663,829 Investment Income and Interest Income on Loans Receivable From Participants (1,658,116) 14,847,075 24,375,847 Total Additions 16,038,002 30,422,491 39,039,676 Deductions Benefit Payments 22,731,902 15,189,724 30,107,650 General, Administrative, and Other Expenses (Credits) 4,927 (132,089) (113,492) Total Deductions 22,736,829 15,057,635 29,994,158 Net (Decrease) Increase (6,698,827) 15,364,856 9,045,518 Plan Net Position Beginning of Year 198,951, ,586, ,541,249 Plan Net Position End of Year $ 192,252,796 $ 198,951,623 $ 183,586,767 Additions Funds to pay benefits are accumulated through contributions and returns on invested funds. Employer and employee contributions for 2016 and 2015 totaled approximately $17.7 million and $15.6 million, respectively. The contributions increased by approximately $2.1 million and $900,000 in 2016 and 2015, respectively. Interest, dividends, and net appreciation on investments generated a total decrease in investment income for 2016 of approximately $2.0 million, a decrease from the approximately $14.8 million in Deductions The expenses paid by the Plan include benefit payments and administrative expenses. Benefits paid to retirees and terminating employees in 2016 were approximately $22.7 million, a 50.1% increase from the 2015 total. Approximately 75 participants terminated employment in 2016 as compared to 161 in 2015, resulting in the increase in the distributions from 2015 to Administrative expenses in 2016 were $4,927, the result of credits from the trustee/recordkeeper, an increase from the credit of ($132,089) in OVERALL ANALYSIS As of March 31, 2016, net position decreased by approximately $6.7 million, or (3.4%), from the prior year. This net decrease in Plan position was due to an increase in benefits paid to separating and retiring participants combined with unrealized depreciation on some investments caused by slight economic turbulence early in REQUEST FOR INFORMATION This financial report is designed to provide a general overview of the finances of the Lower Colorado River Authority s 401(k) Plan for all parties with an interest. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to Retirement Benefits Administrator, The Lower Colorado River Authority, 3700 Lake Austin Boulevard, Austin, Texas Page 5

8 Statements of Plan Net Position Years Ended March 31, 2016 and Assets Investments at fair value $ 185,717,507 $ 192,216,907 Loans to participants 6,535,289 6,734,716 Plan net position held in trust for plan benefits $ 192,252,796 $ 198,951,623 Notes to the financial statements form an integral part of these statements. Page 6

9 Statements of Changes in Plan Net Position Years Ended March 31, 2016 and Additions: Investment income (loss): Net appreciation (depreciation) on investments $ (10,025,141) $ 2,909,749 Interest and dividends 8,023,451 11,597,147 Total investment income (loss) (2,001,690) 14,506,896 Interest income on loans receivable from participants 343, ,179 Contributions: Participants 10,855,435 10,298,671 Employer 5,283,539 4,697,611 Rollovers 1,557, ,134 Total contributions 17,696,118 15,575,416 Total additions 16,038,002 30,422,491 Deductions: Benefits paid to participants (22,731,902) (15,189,724) Administrative expenses net of trustee credits (4,927) 132,089 Total deductions (22,736,829) (15,057,635) Net increase (decrease) (6,698,827) 15,364,856 Plan net position held in trust for plan benefits at beginning of year 198,951, ,586,767 Plan net position held in trust for plan benefits at end of year $ 192,252,796 $ 198,951,623 Notes to the financial statements form an integral part of these statements. Page 7

10 Notes to the Financial Statements 1. Description of Plan The following description of the Lower Colorado River Authority ( LCRA ) 401(k) Plan (the Plan ) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan s provisions. General The Plan is a single employer defined contribution plan sponsored by LCRA and administered by the LCRA Retirement Benefits Board of Trustees (the Board ). Employees of LCRA are eligible to participate in the Plan immediately upon employment. At March 31, 2016 and 2015, 1,912 and 1,709 employees, respectively, were eligible to participate in the Plan and 1,698 and 1,486 employees, respectively, were actively participating in the Plan. Contributions Participants may elect to contribute 1% of eligible compensation up to the maximum allowed annual contribution as prescribed in Internal Revenue Code ( IRC ) Section 402(g)(4). Participants who fail to submit the proper election as of the Participant s Deemed Election Date are deemed to have made an election to contribute 8% of eligible compensation. Participants who have attained age 50 before the end of the Plan year are eligible to make catch up contributions. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. LCRA contributes 25% of the first 4% of compensation for employees who were employed prior to January 1, 2002 and did not elect to participate in the cash balance feature. LCRA contributes 100% of the first 4% of compensation and 50% of the next 2% of compensation, as defined in the Plan, for employees who were employed prior to January 1, 2002 and elected to participate in the cash balance feature of the LCRA Retirement Plan and Trust, as well as those participants employed after January 1, Contributions for employees hired after May 1, 2012 shall be 100% of the first 8% of compensation. Contributions are subject to certain limitations. Effective January 1, 2008, participants can elect to contribute on a pre tax basis, an after tax (Roth) basis, or a combination of the two. Participant Accounts Participants direct the investment of their contributions into various investment options offered by the Plan. Each participant s account is credited with the participant s contribution and allocations of LCRA s contributions and Plan earnings and charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant s vested account. Page 8

11 Notes to the Financial Statements Vesting Participants employed prior to May 1, 2012 are 100% vested in their voluntary contributions and employer contributions. Effective May 1, 2012, a participant whose period of service begins on or after May 1, 2012 is 100% vested in their voluntary contributions at the date of contribution. However, a participant whose period of service begins on or after May 1, 2012 is vested in his or her employer matching contributions in accordance with the following schedule: Years of Vesting Service Vested Percentage Fewer than 3 years 0% 3 or more years 100% Notes Receivable From Participants 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. The loans are secured by the balance in the participant s account and bear interest, as determined by the Plan administrator. Principal and interest are paid through payroll deductions. Notes receivable from participants are measured at their unpaid principal balance plus accrued, but unpaid interest. Interest income is recorded on the accrual basis. Related fees are recorded as administrative expenses and are expensed when they are incurred. If a participant ceases to make loan repayments and the Plan administrator deems the participant loan to be in default, the participant loan balance is reduced and a benefit payment is recorded. Payment of Benefits On termination of service or age 59½, a participant may elect to receive a distribution up to the value of the participant s vested interest in his or her account. Any balance under $1,000 is automatically paid out as soon as administratively possible. Hardship withdrawals are also available for active employees subject to certain limitations. Administrative Expenses Administrative expenses may be paid by either the Plan sponsor or the Plan, as provided by the Plan document. Loan administration fees are paid by the participant electing the loan. Forfeitures Beginning May 1, 2012, participant forfeitures of nonvested balances may be used to reduce future employer contributions. During and 2016 and 2015, employer contributions were not reduced by forfeited nonvested accounts and, at March 31, 2016 and 2015, there were no unallocated forfeitures. Page 9

12 Notes to the Financial Statements 2. Summary of Significant Accounting Policies Reporting Entity The Plan is sponsored by LCRA. The Plan does not purport to, and does not, present the financial position or changes in financial position of LCRA as of any date or for any period. Certain information regarding the Plan is included in the notes to LCRA s financial statements. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein. Actual results could differ from those estimates. The Plan invests in various types of investments. Investments are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risk associated with certain investments, it is at least reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect participants account balances and the amounts reported in the statements of net position. Basis of Accounting The financial statements of the Plan are reported using the economic resources measurement focus and are prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related cash flows. The Plan applies all applicable Governmental Accounting Standards Board ( GASB ) pronouncements, and presents its financial statements in accordance with the GASB Codification of Government Accounting and Financial Reporting Standards. Investment Valuation and Income Recognition Investments are reported at fair value. Fair value is the price that would be recognized to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Purchases and sales of securities are recorded on a trade date basis. Interest is recorded on the accrual basis. Dividends are recorded on the ex dividend date. Net appreciation includes the Plan s gains and losses on investments bought and sold, as well as held during the year. Payment of Benefits Benefits are recorded when paid. Subsequent Events The Plan has evaluated subsequent events through September 16, 2016, the date the financial statements were available to be issued. Page 10

13 Notes to the Financial Statements 3. Investments The Plan s trustees have the following responsibilities: Operate the Plan in compliance with legal requirements and Plan documents and for the exclusive benefit of the participants Adoption of an Investment Policy Statement ( IPS ) that provides the appropriate investment options Identify appropriate investment options allowing for adequate levels of asset allocation Selection of qualified investment administrators Selection of a trustee/custodian Monitoring investment results Monitoring administrators compliance with the IPS and the fees charged for services Take appropriate action if objectives are not being met or guidelines not being followed Investment administrators have the following responsibilities: Develop and implement the investment strategy Manage assets within guidelines, regulations, and the investment strategy Communication with the Board, at least annually, the performance of the Plan s investments Trustees provide trustee services and provide for the education of participants regarding the importance of equities and asset allocation. The recordkeeper maintains account balance information on a participant, as well as on a total Plan basis. Participants determine personal risk level and select options appropriate for meeting their unique investment objectives. The Plan s investments are subject to various risks that have the potential to result in losses. These risks are custodial credit risk, credit risk, concentration of credit risk, interest rate risk, and foreign currency risk. Each risk is described in detail on the following pages. Page 11

14 Notes to the Financial Statements Investments are valued at fair value, determined by quoted market prices. A comparison of original cost to fair value at March 31, 2016 and 2015 is as follows: Years Ended March 31, Fair Value Cost Fair Value Cost Common stock $ 3,331,164 $ 3,643,179 $ 3,203,842 $ 3,348,393 Mutual funds 181,021, ,029, ,606, ,813,859 Cash and equivalents 1,365,212 1,365, , ,430 $ 185,717,507 $ 181,038,179 $ 192,216,907 $ 177,568,682 Custodial Credit Risk Custodial credit risk for investments is the risk that in the event of a failure of a counterparty to a transaction, the Plan will not be able to recover the value of the investment or collateral securities that are in the possession of an outside party. The Plan has no investment policy regarding custodial credit risk. The Plan is exposed to minimal custodial credit risk. All investments are held in bank nominee name and not in the Plan s name. Credit Risk Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligation. The Plan has no formal investment policy regarding credit quality rating guidelines. These associated risks will vary according to each participant s investment elections. Concentration of Credit Risk Concentration of credit risk is defined as the risk of loss attributed to the magnitude of a government s investment in a single issuer. The Plan has no investment policy regarding concentration of credit risk. Securities issued by or backed by the full faith and credit of the United States government are not subject to position limits. Page 12

15 Notes to the Financial Statements The following table presents the fair value of equity investments representing 5% or more of the Plan s net position separately identified at March 31, 2016 and 2015: March 31, Fidelity Contrafund $ 37,377,250 $ 41,202,697 Spartan 500 Index Institutional 19,481,436 20,164,100 Fidelity Freedom ,373,087 16,308,257 Fidelity Low Priced Stock 10,204,220 12,828,815 Fidelity Freedom ,454,153 15,488,475 Fidelity Freedom ,281,045 15,863,912 Vanguard Equity Income Fund Admiral 10,259,706 * Fidelity Freedom ,292,955 * Fidelity Equity Income * 11,440,518 *Did not meet 5% criteria at respective financial statement date. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of investments. The Plan has no formal investment policy for the management of interest rate risk. Foreign Currency Risk Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment. The Plan has no formal investment policy for the management of foreign currency risk. 4. Related Party Transactions Certain Plan investments are shares of mutual funds managed by Fidelity Investments. Fidelity Investments is the trustee, as defined by the Plan and, therefore, these investments qualify as related party transactions. The Plan sponsor paid certain administrative expenses related to the Plan for the years ended March 31, 2016 and Plan Termination Although it has not expressed any intent to do so, the Plan sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan. The event of complete discontinuance of contributions to the Plan by the employer does not constitute a formal termination of the Plan and does not preclude later contributions; however, the accounts of all participants will, as of the date of the discontinuance, become 100% vested and nonforfeitable. Page 13

16 Notes to the Financial Statements 6. Tax Status The Internal Revenue Service has determined and informed LCRA that the Plan and related trust are designed in accordance with applicable sections of the IRC. The Board and the Plan s tax counsel believe that the Plan is designed, and is currently being operated, in compliance with the applicable requirements of the IRC and, therefore, believe the Plan is qualified and the related trust is tax exempt. The Plan is not subject to the provisions of the Employee Retirement Income Security Act. Page 14