AND SUPPLEMENTARY INFORMATION For the Years Ended June 30, 2013 and 2012

Transcription

1 WATER AND POWER EMPLOYEES' RETIREMENT, DISABILITY, AND FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION For the Years Ended June 30, 2013 and 2012 WATER AND POWER EMPLOYEES' RETIREE HEALTH BENEFITS FUND FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION For the Years Ended June 30, 2013 and 2012

2 TABLE OF CONTENTS Independent Auditor's Report... 1 Management's Discussion and Analysis... 3 Financial Statements: Retirement Fund: Statement of Plan Net Position Statement of Changes in Plan Net Position Disability Fund: Statement of Plan Net Position Statement of Changes in Plan Net Position Death Benefit Fund: Statement of Plan Net Position Statement of Changes in Plan Net Position Retiree Health Benefits Fund: Statement of Plan Net Position...25 Statement of Changes in Plan Net Position Notes to the Financial Statements Required Supplementary Information Exhibit I: Retirement Fund Schedule of Funding Progress Exhibit II: Retirement Fund Schedule of Employer Contributions Exhibit III: Death Benefit Fund (Insured Lives) Schedule of Funding Progress Exhibit IV: Death Benefit Fund (Insured Lives) Schedule of Employer Contributions... 55

3 Exhibit V: Exhibit VI: CITY OF LOS ANGELES Retiree Health Benefits Fund TABLE OF CONTENTS (Continued) Schedule of Funding Progress Retiree Health Benefits Fund Supplementary Information Exhibit VII: Exhibit VIII: Exhibit IX: Schedule of Employer Contributions Retirement Fund - Schedule of Contribution Accounts and Estimated Liability for Retirement Allowances Death Benefit Fund - Schedule of Contribution Accounts and Estimated Liability for Family Allowances Retirement Fund - Schedule of Revenues by Source and Expenses by Type... 60

4 us. BANK TOWER. 633 WEST 5TH STR.EIT, SU ITE 3320 LOS ANGELES, CA (213) 736~6664 TELEPHONE (213) 736 ~6692 FAX www. s im psonand s impso ncpas~com SIMPSON & SIMPSON CERTIFIED PUBLIC ACCOUNTANTS FOUNDING PARTNERS BRAINARD C. SIMPSON, C PA MELBA W SIMPSON, C PA INDEPENDENT AUDITOR'S REPORT To the Board of Administration City of Los Angeles Water and Power Employees' Retirement, Disability and Death Benefit Insurance Plans Report on the Financial Statements We have audited the accompanying statements of plan net position of the City of Los Angeles Water and Power Employees' Retirement, Disability and Death Benefit Insurance Plan (Retirement Plan) and the Retiree Health Benefits Fund (RHBF), collectively known as the Plan, as of June 30, 2013 and 2012, and the related statements of changes in plan net position for the years then ended as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the 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 opinions. (CPAj The CPA. Never Underestimate The Value ~

5 Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the net position available for benefits of the Retirement Plan and RHBF as of June 30, 2013 and 2012, and the changes in net position available for benefits of the Retirement Plan and RHBF for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis on pages 3 through 18, the Schedules of Funding Progress on pages 52, 54, and 55, and the Schedules of Employer Contributions on pages 53 and 56 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 statement in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audits of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audits were conducted for the purpose of forming an opinion on the Plan's financial statements. The supplementary information as listed in the accompanying table of contents are presented for the purposes of additional analysis and are not a required part of the basic financial statements. The Retirement Fund - Schedule of Contribution Accounts and Estimated Liability for Retirement Allowances, Death Benefit Fund - Schedule of Contribution Accounts and Estimated Liability for Family Allowances, and Retirement Fund - Schedule of Revenues by Source and Expenses by Type are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Retirement Fund - Schedule of Contribution Accounts and Estimated Liability for Retirement Allowances, Death Benefit Fund - Schedule of Contribution Accounts and Estimated Liability for Family Allowances, and Retirement Fund - Schedule of Revenues by Source and Expenses by Type are fairly stated, in all material respects, in relation to the basic financial statements as a whole. Los Angeles, California November 20,2013 2

6 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) We are pleased to provide this overview and analysis of the financial activities of the City of Los Angeles Department of Water and Power (Department) Employees' Retirement, Disability, and Death Benefit Insurance Plan (Plan) and the Retiree Health Benefits Fund (RHBF) for the years ended June 30, 2013 and The Retirement Plan and the RHBF are collectively known as the Plan. FINANCIAL HIGHLIGHTS The net position at the close of the fiscal year ending June 30, 2013 were $8,304,011,429, $46,454,846, $25,020,132, and $1,377,819,588 for the Retirement, Disability, Death Benefit, and Retiree Health Benefits Funds, respectively. All of the net positions were available to meet the Plan's obligations to Plan participants and their beneficiaries. Total net position increased by $919,867,553 or 12.46%, $263,579 or 1.06% and $152,039,719 or 12.40% for the Retirement Fund, Death Benefit Fund, and Retiree Health Benefits Fund, respectively. Total net position decreased by $1,179,406 or 2.48% for Disability Fund. As of July 1,2013 the date of the Retirement Fund's last actuarial valuation, the funding ratio of the fund was approximately 78.84%. As of June 30, 2013, the date of the Retiree Health Benefits Fund's latest actuarial valuation, the funding ratio was approximately 76.40%. Additions to the Retirement Fund's Plan net position increased from $393,806,154 to $1,362,131,790 over the prior year or approximately % due mostly to the increase in the fair value of investments in 2013 over Deductions from Retirement Fund's Plan net position increased from $419,999,200 to $442,264,237 over the prior year, or approximately 5.30% due mostly to the cost of living allowance increase granted to pension benefits effective July The assets of the Retiree Health Benefits Fund were invested under the oversight of the Retirement Board. The RHBF assets were up 12.40% from $1,225,779,869 to $1,377,819,588. 3

7 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) OVERVIEW OF THE FINANCIAL STATEMENTS The following discussion and analysis is intended to serve as an introduction to the financial statements of the Plan, which are: 1. Statement of Plan Net Position 2. Statement of Changes in Plan Net Position 3. Notes to the Financial Statements The Statement of Plan Net Position is a snapshot of account balances at year end. It indicates the amount of assets available for payment to retirees, beneficiaries, and any current liabilities owed at this time. The Statement of Changes in Plan Net Position reports additions to and deductions from the plan net position during the year. The above statements are on a full accrual basis of accounting. Investment gains and losses are shown at trade date, and account balances are based on market values recognizing both realized and unrealized gains and losses on investments. Notes to the Financial Statements provide additional information essential to a full understanding of the data provided in the financial statements. These notes are presented in pages 27 to 51 of this report. Required Supplementary Information: This report presents certain required supplementary information concerning the Retirement Fund, the Retiree Health Benefits Fund, and the Death Benefit Fund's progress in funding to provide pension, health benefits, and insured life benefits to members. The report also provides summary information on employer contributions. The required Supplementary Information is on pages 52 to 56 of this report. Supplementary Information: The supplementary information is also available in this report for a better understanding of the Plan's financial activities. The supplementary information is on pages 57 to 59 of this report. 4

8 FINANCIAL ANALYSIS Retirement Fund Plan Net Position MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) A summary of the Retirement Plan's net position is presented below: Condensed Statement of Plan Net Position (In Thousands) % Change Cash $ 9,497 $ 12,175 $ 9, % Prepaid expense % Receivables 360, , , % Investments 8,637,738 7,875,126 8,241, % Total assets 9,007,513 8,099,257 8,768, % Liabilities 703, ,113 1,358, % Total plan net position $ 8,304,012 $ 7,384,144 $ 7,410, % % Change 34.23% 0.00% % -4.45% -7.63% % -0.35% Fiscal :year ended June 30~ 2013 Net position increased by $919.9 million, or 12.46% to $8.3 billion over the prior fiscal year. Investments were up $762.6 million or 9.68% due mostly to the appreciation in the fair value of investments. Receivables were up $148.3 million or 69.98% from fiscal year 2012 mainly because of an increase in pending trades at year-end. Fiscal :year ended June 30, 2012 Net position decreased by $26.2 million, or 0.35% to $7.4 billion over the prior fiscal year. Investments were down $366.6 million or 4.45% due mostly to the decrease in investments associated with securities lending activities and the depreciation in the fair value of investments. Receivables were down $305.8 million or 59.06% from fiscal year 2011 mainly because of a decrease in pending sales at year-end. Liabilities were down $643.1 million or 47.35% due mostly to a decrease in pending investment purchases at year-end and decrease in liabilities associated with securities lending transactions. 5

9 Retirement Fund (Continued) MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Changes in Plan Net Position Condensed Statement of Changes in Plan Net Position (In Thousands) % Change % Change Additions Members' contributions Employer contributions Net investment income $ 69,634 $ 60, , , ,679 7,720 $ 65, ,268 1,189, % 14.36% % -8.89% 11.92% % Total additions 1,362, ,806 1,546, % % Deductions Benefit payment Refund Administrative expenses 432,708 5,819 3, ,814 5,527 3, ,125 2,382 3, % 3.71% 5.28% % 2.16% -6.04% Total deductions 442, , , % 4.37% Net increase (decrease) in plan net position Net position beginning 919,868 7,384,144 (26,193) 7,410,337 1,144,062 6,266, % -0.35% % 18.26% Net position ending $ 8,304,012 $ 7,384,144 $ 7,410, % -0.35% 6

10 Retirement Fund (Continued) Additions to Plan Net Position MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Additions needed to fund benefit payments are accumulated through contributions from the employees and the employer, and from income generated from the Plan's investing activities. Fiscal year ended June 30, 2013 Member contributions for fiscal year 2013 were $69.6 million, up $9.5 million or 15.88% over the prior fiscal year. The increase in contributions was due primarily to the increase in number of employees transferred from the other City departments to DWP. Department contributions for fiscal year 2013 were $372.8 million, up $46.8 million or 14.36% over the prior fiscal year. The main cause of this increase was the 4.26% increase in the actuarial contribution rate of the Department from 41.82% of covered compensation a year ago to 46.08% of covered compensation in fiscal year Net investment income increased from $7.7 million to $919.7 million in fiscal year The increase in net investment income was attributable to the net appreciation in the fair value of investments. Fiscal year ended June 30, 2012 Member contributions for fiscal year 2012 were $60.1 million, down $5.9 million or 8.89% over the prior fiscal year. The decrease in contributions was due primarily to the decrease in number of employees hired by DWP. Department contributions for fiscal year 2012 were $326.0 million, up $34.7 million or 11.92% over the prior fiscal year. The main cause of this increase was the 3.37% increase in the actuarial contribution rate of the Department from 38.45% of covered compensation a year ago to 41.82% of covered compensation in fiscal year Net investment income amounted to $7.7 million, down 99.35% from fiscal year The decrease in net investment income was attributable to the net depreciation in the fair value of investments. 7

11 Retirement Fund (Continued) Deductions from Plan Net Position MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Costs associated with this Plan include benefit payments as designated by the Retirement Plan, refund of contributions due to terminations and member deaths, and administrative costs of operating the Plan. Fiscal year ended June 30, 2013 Deductions for the fiscal year ended June 30, 2013 totaled $442.3 million, up $22.3 million or 5.30% over The increase was mostly due to the cost-of-living adjustments made to pension benefits starting July Fiscal year ended June 30, 2012 Deductions for the fiscal year ended June 30, 2012 totaled $420.0 million, up $17.6 million or 4.37% over The increase was mostly due to the cost-of-living adjustments made to pension benefits starting July

12 Disability Fund Plan Net Position MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) The Disability Insurance Plan's net position is summarized below: Condensed Statement of Plan Net Position (In Thousands) % Change Cash $ 2,558 $ 1,750 $ % Receivables 6,457 7,337 6, % Investments 37,711 38,681 39, % Total assets 46,726 47,768 47, % Liabilities % Total plan net position $ 46,455 $ 47,634 $ 47, % % Change % 7.83% -2.96% 1.20% -4.96% 1.22% Fiscal year ended June The Disability Insurance Plan's net position decreased by approximately $1.2 million, or 2.48%, in fiscal year Cash increased by $0.8 million or 46.17% from the prior fiscal year, to provide plan benefit payments. Fiscal year ended June The Disability Insurance Plan's net position increased by approximately $0.6 million, or 1.22%, in fiscal year Cash increased by $1.2 million or % from the prior fiscal year, to provide plan benefit payments. 9

13 Disability Fund (continued) Changes in Plan Net Position MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Additions Members' contributions Employer contributions Net investment income $ Condensed Statement of Changes in Plan Net Position (In Thousands) % Change % Change 447 $ 14, $ 13,584 3, ,195 2, % 6.92% % -2.79% 11.39% 67.83% Total additions 15,153 17,412 14, % 18.68% Deductions Benefit payment Administrative expenses 15, , , % -9.25% 8.16% -2.12% Total deductions 16,332 16,837 15, % 7.60% Net increase (decrease) in plan net position Net position beginning (1,179) 47, ,059 (976) % 48, % % -2.03% Net position ending $ 46,455 $ 47,634 $ 47,059 ====== -2.48% 1.22% Additions to Plan Net Position Additions needed to fund benefits are accumulated through employer and employee contributions and investment income generated from the fund's investing activities. Fiscal year ended June 30, 2013 Employer contributions for fiscal year 2013 totaled $14.5 million, up approximately $0.9 million or 6.92% from a year ago. The increase was due to the increase in the Department's actuarial contribution rate for temporary disability benefits. The Department's actuarial contribution rate for fiscal year 2013 was $1.52 per $ of covered compensation, while the rate was $1.43 per $ of covered compensation in fiscal year

14 Disability Fund (continued) MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Net investment income declined by $3.2 million, or 94.61%, from fiscal year The difference is mainly attributed to the depreciation in the fair value of investments during fiscal year Fiscal year ended June 30, 2012 Employer contributions for fiscal year 2012 totaled $13.6 million, up approximately $1.4 million or 11.39% from a year ago. The increase was due to the increase in the Department's actuarial contribution rate for temporary disability benefits. The Department's actuarial contribution rate for fiscal year 2012 was $1.43 per $ of covered compensation, while the rate was $1.29 per $ of covered compensation in fiscal year Net investment income totaled $3.4 million, up 67.83% from fiscal year The difference is mainly attributed to the appreciation in the fair value of investments during fiscal year Deductions from Plan Net Position The costs associated with this Plan include disability benefit payments and administrative expenses incurred to operate the Plan. Fiscal year ended June 30, 2013 Fiscal year 2013 benefit payments decreased by $0.4 million, down 2.67% from a year ago. The decrease was primarily due to a decrease in the temporary disability benefits paid. Fiscal year ended June 30, 2012 Fiscal year 2012 benefit payments increased $1.2 million, up 8.16% from a year ago. The increase was attributable to an increase in the temporary disability benefits and industrial disability supplement paid. 11

15 Death Benefit Insurance Fund MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) The Death Benefit Plan's net position is summarized below: Condensed Statement of Plan Net Position (In Thousands) % Change Cash $ 920 $ 1,032 $ 1, % Receivables , % Investments 26,927 25,736 22, % Total assets 28,727 27,753 25, % Liabilities 3,707 2,996 3, % Total plan net position $ 25,020 $ 24,757 $ 22, % % Change % % 11.99% 7.13% % 10.32% Fiscal year ended June The Fund's net position increased slightly by $0.3 million or 1.06% when compared with prior year's net position of $24.8 million. Liabilities at June 30, 2013 were up $0.7 million, or 23.73% against last year. This is mostly attributable to the higher death benefit claims outstanding at fiscal year end. Fiscal year ended June The Fund's net position increased by $2.3 million or 10.32% when compared with prior year's net position of $22.4 million. Correspondingly, investments at June 30, 2012 were up $2.8 million, or 11.99% against last year. Receivables were down $0.7 million or 40.09% versus fiscal year This is mainly because of a decrease in pending investment sales at year end. 12

16 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Death Benefit Insurance Fund (continued) Changes in Plan Net Position Condensed Statement of Changes in Plan Net Position (In Thousands) % Chan~e % Change Additions Members' contributions $ 318 $ 322 $ % -1.53% Employer contributions 7,972 8,045 8, % 0.52% Net investment income 57 2,075 1, % 96.50% Total additions 8,347 10,442 9, % 11.25% Deductions Benefit payment 7,179 7,235 7, % -7.65% Administrative expenses , % % Total deductions 8,084 8,127 8, % -8.l9% Net increase in plan net position 263 2, % % Net position beginning 24,757 22,442 21, % 2.44% Net position ending $ 25,020 $ 24,757 $ 22, % 10.32% Additions to Plan Net Position Additions to fund the benefits are accumulated through contributions and investment income from invested funds. 13

17 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Death Benefit Insurance Fund (continued) Fiscal year ended June 30, 2013 Net investment income decreased by $2.0 million, or 97.25%, from fiscal year decrease is attributed to the decline in the fair value of investments during fiscal year The Fiscal year ended June 30, 2012 Net investment income totaled $2.1 million, up 96.50% from fiscal year The increase is attributed to the appreciation in the fair value of investments during fiscal year Deductions from Plan Net Position The costs associated with this Plan include the benefits payments and administrative costs to operate the Plan. Fiscal year ended June 30, 2013 Total deductions were consistent against prior fiscal year; it was only down 0.53% versus fiscal year Fiscal year ended June 30, 2012 Benefit payments were down $0.6 million, or 7.65%. The decrease was due to the decrease in the amount of insured life death benefit cases processed this fiscal year as compared with the previous fiscal year. 14

18 Retiree Health Benefits Fund MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) The DWP Board of Water and Power commissioners approved the creation of the Retiree Health Benefits Fund in September 2006 to defray current and future retiree health benefit liabilities and related costs incurred by the fund. The Retirement Board has the fiduciary responsibility for investing the assets of the Health Fund and administering payments from it, while the DWP Board of Water and Power Commissioners continues to have the responsibility to set the funding policy and the funding levels of the RHBF. Health Fund assets amounting to $642.0 million were transferred to the Retirement Plan to establish the fund during fiscal year As of June 30, 2013 the net position of the fund totaled approximately $1.4 billion. A condensed statement of the fund's plan net position and a condensed statement of changes in plan net position, is as follow: Plan Net Position Condensed Statement of Plan Net Position (In Thousands) % Change % Change Cash $ 798 $ 918 $ % 80.35% Receivables 57,071 33,893 86, % % Investments 1,451,419 1,3l7,756 1,335, % -1.35% Total assets 1,509,288 1,352,567 1,422, % -4.93% Liabilities 131, , , % % Total plan net position $ 1,377,820 $ 1,225,780 $ 1,174, % 4.34% Fiscal :year ended June Net position increased by $152.0 million or 12.40% to $1.4 billion over the prior fiscal year. Investments were up $133.7 million or 10.14% due mostly to the appreciation in the fair value of investments. Receivables were up $23.2 million or 68.39% from fiscal year 2012 mainly because of an increase in pending trades at year-end. 15

19 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Retiree Health Benefits Fund (continued) Fiscal year ended June 30, 2012 Total receivables decreased by $52.5 million or 60.78% mainly because of the decrease in pending investment sales at fiscal year end. Total liabilities decreased by $121.2 million or 48.88%. This is due to a decrease in pending investment purchases at year-end and decrease in liabilities associated with securities lending transactions. Changes in Plan Net Position Condensed Statement of Changes in Plan Net Position (In Thousands) % Change % Chan~e Additions Employer contributions $ 68,180 $ 102,326 $ 140, % % Net investment income 151,941 13, , % % Total additions 220, , , % % Deductions Benefit payment 67,563 64,221 65, % -1.40% Administrative expenses % -1.67% Total deductions 68,080 64,633 65, % -1.40% Net increase in plan net position 152,041 51, , % % Net position beginning 1,225,779 1,174, , % 26.69% Net position ending $ 1,377,820 $ 1,225,779 $ 1,174, % 4.34% Additions to Plan Net Position Additions to fund the benefits are accumulated through contributions from the Department and investment income derived from invested funds. 16

20 MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) Retiree Health Benefits Fund (continued) Fiscal year ended June 30, 2013 Employer contributions were down $34.1 million or 33.37% due to a reduction in funding above the Annual Required Contribution in fiscal year 20l3. Net investment income increased $l38.6 million to $151.9 million. This is attributed to the net appreciation in fair value of investments. Fiscal year ended June 30, 2012 Employer contributions were down $38.4 million or 27.30% due to a reduction in funding above the Annual Required Contribution in fiscal year Net investment income declined by $159.0 million or 92.26%. This is attributed to the net depreciation in fair value of investments. Deductions from Plan Net Position Deductions represent medical and dental insurance premiums paid for the benefit of retirees and the cost associated with the operation of the fund. Fiscal year ended June 30, 2013 Insurance premiums paid from the fund for the benefit of retirees increased $3.3 million or 5.20% in 2013 when compared with Fiscal year ended June 30, 2012 Total deductions in fiscal year 2012 were fairly consistent compared to the prior year. 17

21 Request for Information MANAGEMENT'S DISCUSSION AND ANALYSIS (Unaudited) This financial report is designed to provide the Retirement Board, members, investment managers and creditors with a general overview of the Plan's finances. Questions concerning any of the information provided in this report or requests or requests for additional information should be addressed to: Sangeeta Bhatia, Retirement Plan Manager Water and Power Employees' Retirement Plan 111 N. Hope Street, Room 357 Los Angeles, CA

22 RETIREMENT FUND STATEMENT OF PLAN NET POSITION As ofjune 30 ASSETS Cash (Notes 2 and 3) $ 9,496,666 Prepaid Expense 3,310 $ 12,174,358 3,310 Receivables Accrued investment income 19,076,213 Department of Water and Power 51,374,267 Pending investment sales 285,172,317 Other 4,652,052 Total receivables 360,274,849 Investments, at fair value (Notes 2, 3, and 4) Fixed income (amortized cost $2,021,799,390 in 2013 and $1,972,298,738 in 2012) 2,015,837,548 Common stock (cost of$4,229,927,905 in 2013 and $4,039,450,036 in 2012) 5,189,194,044 Short-term investments (cost approximates fair value) 297,515,895 Alternative investments 580,295,599 Real estate 241,802,050 Securities lending - short-term collateral investment pool 313,092,487 Total investments 8,637,737,623 Total assets 9,007,512,448 LIABILITIES 21,919,418 43,142, ,617,256 2,273, ,952,644 2,030,007,946 4,433,727, ,293, ,078, ,990, ,027,647 7,875,126,228 8,099,256,540 Payables Pending investment purchases 377,554,033 Other 12,854,499 Securities lending - collateral payable (Note 4) 313,092,487 Total liabilities 703,501,019 Net position held in trust for pension benefits $ 8,304,011,429 $ 213,476,355 11,608, ,027, ,112,664 7,384,143,876 The accompanying notes are an integral part of these financial statements. 19

23 RETIREMENT FUND STATEMENT OF CHANGES IN PLAN NET POSITION For the Years Ended June 30 ADDITIONS Members' contributions $ 69,633,449 Department of Water and Power contributions towards: Benefit (net of reversions) 368,426,348 Administrative expenses 4,392,846 Total contributions 442,452,643 Investment income Net appreciation (depreciation) in fair value of investments 748,924,297 Interest 88,458,815 Dividends 86,760,743 Income from real estate investments 14,190,284 Income (loss) from alternative investments 836,711 Securities lending (Note 4) 1,597,698 Total investment income 940,768,548 Less: securities lending expenses (Note 4) (282,446) Less: investment expenses (23,496,492) Net investment income 916,989,610 Other income 2,689,537 Total additions 1,362,131,790 DEDUCTIONS Retirement benefits paid 432,708,113 Refund of members' contributions 5,819,253 Administrative expenses 3,736,871 Total deductions 442,264,237 Net increase (decrease) in plan net position 919,867,553 Net position held in trust for pension benefits Beginning of year 7,384,143,876 End of year $ 8,304,011,429 $ $ 60,088, ,688,919 4,308, ,085,970 (166,352,568) 111,719,555 72,539,059 7,844,394 (998,576) 3,398,752 28,150,616 (575,204) (20,488,839) 7,086, , ,806, ,814,067 5,526,896 3,658, ,999,200 (26,193,046) 7,410,336,922 7,384,143,876 The accompanying notes are an integral part of these financial statements. 20

24 DISABILITY FUND STATEMENT OF PLAN NET POSITION As of June 30 ASSETS Cash (Notes 2 and 3) $ 2,557,613 Receivables Accrued investment income 72,851 Department of Water and Power 2,412,467 Other 660,949 Contingent disability benefit advance 3,310,339 Total receivables 6,456,606 Investments, at fair value (Notes 2 and 3) Fixed income (amortized cost $32,576,401 in 2013 and $33,080,525 in 2012) 36,692,449 Short-term investments (cost approximates fair value) 1,018,733 Total investments 37,711,182 Total assets 46,725,401 $ 1,749,930 97,593 2,612,733 1,315,872 3,310,339 7,336,537 38,063, ,372 38,681,310 47,767,777 LIABILITIES Payables Pending investment purchases 72,739 Other 197,816 Total Liabilities 270,555 Net position held in trust for disability benefits $ 46,454,846 97,510 36, ,525 $ 47,634,252 The accompanying notes are an integral part of these financial statements. 21

25 DISABILITY FUND STA TEMENT OF CHANGES IN PLAN NET POSITION For the Years Ended June 30 ADDIDONS Department of Water and Power contributions towards: Temporary disability benefits $ 12,173,356 Supplemental disability benefits 1,593,124 Administrative expenses 757,9lO 2013 $ ,050,295 1,697, ,317 Total department contributions 14,524,390 13,583,517 Contributions from members for: Temporary disability benefits 224,649 Permanent total disability benefits 222,040 Total members' contributions 446,689 Net appreciation (depreciation) in fair value of investments (733,753) Investment income 963,654 Less: investment expenses (48,319) Net investment income 181,582 Total additions 15,152, , , ,245 2,033,714 1,388,604 (47,676) 3,374,642 17,411,404 DEDUCTIONS Benefits provided: Temporary disability 11,735,737 Extended temporary disability 394,778 Permanent total disability 1,853,493 Supplemental disability 1,593,124 Total benefits provided 15,577,132 Administrative expenses 754,935 Total deductions 16,332,067 Net increase (decrease) in plan net position (1,179,406) Net position held in trust for disability benefits Beginning of year 47,634,252 End of year $ 46,454,846 $ 12,106, ,648 1,837,781 1,697,355 16,004, ,912 16,836, ,524 47,059,728 47,634,252 The accompanying notes are an integral part of these fmancial statements. 22

26 DEATH BENEFIT FUND STATEMENT OF PLAN NET POSITION As of June 30 ASSETS Cash (Notes 2 and 3) $ 919,762 Receivables Department of Water and Power 807,853 Accrued investment income 52,035 Other 20,587 Total receivables 880,475 Investments, at fair value (Notes 2 and 3) Fixed income (amortized cost $23,988,712 in 2013 and $22,021,150 in 2012) 26,208,830 Short-term investments (cost approximates fair value) 717,742 Total investments 26,926,572 Total assets 28,726,809 LIABILITIES Payables Pending investment purchases 51,956 Other 745,578 Death claims in process - insured lives 2,909,143 Total liabilities 3,706,677 Net position held in trust for death benefits $ 25,020,132 $ $ 1,031, ,230 63,446 20, ,720 24,719,737 1,016,499 25,736,236 27,752,898 63, ,570 2,477,449 2,996,345 24,756,553 The accompanying notes are an integral part of these financial statements. 23

27 DEATH BENEFIT FUND STATEMENT OF CHANGES IN PLAN NET POSITION For the years ended June ADDITIONS Department of Water and Power contributions towards: Active members $ 2,043,553 Retired members (non-contributing) 5,021,181 Administrative expenses 907,307 Total department contributions 7,972,041 Contributions from members for: Insured lives death benefit 222,040 Supplemental family death benefit 96,809 Total members' contributions 318,849 Net appreciation (depreciation) in fair value of investments (569,713) Investment income 660,008 Less: investment expenses (33,2322 Net investment income 57,063 Total additions 8,347,953 DEDUCTIONS Benefits provided for: Death benefits (active/retired members) 6,643,747 Family allowances 535,444 Total benefits provided 7,179,191 Administrative expenses 905,183 Total deductions 8,084,374 Net increase in plan net position 263,579 Net position held in trust for death benefits Beginning of year 24,756,553 End of year $ 25,020,132 $ $ ,148,545 5,001, ,757 8,044, ,880 96, ,511 1,228, ,223 PO,3062 2,074,908 10,442,137 6,647, ,470 7,234, ,492 8,127,327 2,314,810 22,441,743 24,756,553 The accompanying notes are an integral part of these financial statements. 24

28 RETIREE HEALTH BENEFITS FUND STATEMENT OF PLAN NET POSITION As of June 30 ASSETS Cash and cash equivalents (Notes 2 and 3) $ 797,696 $ 918,273 Receivables Accrued investment income 3,278,342 Department of Water and Power 1,318 Pending investment sales 53,791,251 Total receivables 57,070,911 Investments, at fair value (Notes 2, 3 and 4) Fixed income (amortized cost $376,026,674 in 2013 and $363,133,218 in 2012) 374,845,086 Common stock (cost of$713,075,846 in 2013 and $675,387,702 in 2012) 882,859,586 Short-term investments (cost approximates fair value) 40,996,180 Alternative investments 79,875,069 Real estate 19,158,536 Securities lending - short-term collateral investment pool 53,684,636 Total investments 1,451,419,093 Total assets 1,509,287,700 3,656,063 13,201 30,223,292 33,892, ,656, ,702,077 67,425,083 67,767,651 11,145,758 70,058,948 1,317,755,925 1,352,566,754 LIABILITIES Payables Accounts payable 4,396,442 Pending investment purchases 73,387,034 Security lending - collateral payable (Note 4) 53,684,636 Total liabilities 131,468,112 Net position held in trust for retiree health benefits $ 1,377,819,588 2,084,608 54,643,329 70,058, ,786,885 $ 1,225,779,869 The accompanying notes are an integral part of these financial statements. 25

29 RETIREE HEALTH BENEFITS FUND STATEMENT OF CHANGES IN PLAN NET POSITION For the Year Ended June ADDITIONS Department of Water and Power contributions towards: Retiree health benefits $ Insurance premiums 67,562,881 Adminstrative expenses 616,670 Total department contributions 68,179,551 Investment income Net appreciation (depreciation) in fair value of investments 123,583,536 Interest and dividends 30,516,202 Gain (loss) from alternative investments 161,955 Real estate income 1,026,738 Securities lending (Note 4) 216,757 Total investment income 155,505,188 Less: securities lending expenses (Note 4) (38,758) Less: investment expenses (3,525,813) Net investment income 151,940,617 Total additions 220,120,168 DEDUCTIONS Retiree health benefits paid (insurance premiums) 67,562,881 Administrative expenses 517,568 Total deductions 68,080,449 Net increase in plan net position 152,039,719 Net position held in trust for retiree heath benefits Beginning of year 1,225,779,869 End of year $ 1,377,819, $ 37,500,000 64,220, , ,325,851 (15,807,543) 31,289,123 (26,560) 290, ,167 16,247,955 (86,768) (2,820,164) 13,341, ,666,874 64,220, ,850 64,632,436 51,034,438 1,174,745,431 $ 1,225,779,869 The accompanying notes are an integral part of these financial statements. 26

30 NOTES TO THE FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE 1 - PLAN DESCRIPTION AND CONTRIBUTION INFORMATION The Retirement Board of Administration (Retirement Board) is the administrator of the City of Los Angeles Water and Power Employees' Retirement, Disability, and Death Benefit Insurance Plan (Retirement Plan). The Retirement Plan is comprised of three separate funds - retirement fund, disability fund, and death benefit fund. Also, the Retirement Board has investment oversight of the Retiree Health Benefits Fund (RHBF), and together with the Retirement Plan are collectively known as the Plan. Each fund under the Retirement Plan and the RHBF is considered an independent trust fund of the Department of Water and Power (Department), which is a proprietary department of the City of Los Angeles (City). The Retirement Plan was established in 1938 and is subject to the provisions of the City Charter and the plan document. The Retirement Plan operates as a single-employer defined benefit plan to provide pension benefits, including death and disability benefits, to eligible Department employees. In 1986, the Board of Water and Power Commissioners (DWP Board) adopted the Department Health Plans Board Resolution. This resolution established provisions for the health, dental and other medical plans of the Department and its subsidies. This resolution is updated ammally to approve changes in health plan carriers and subsidy amounts. This resolution and subsequent amendments have created the Department's Postretirement Health Care Benefit Plan (Retiree Health Benefits Plan), a single-employer postemployment healthcare benefit plan. On September 6, 2006, the Retirement Board approved the creation and establishment of the RHBF for the purpose of funding the benefits provided under the Retiree Health Benefits Plan. 27

31 NOTES TO THE FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE 1- PLAN DESCRIPTION AND CONTRIBUTION INFORMATION (Continued) Retirement, Disability, and Death Benefit Insurance Plan (Retirement Plan) Membership The Retirement Plan's membership consisted of the following at June 30, 2013 and 2012: Retirees, beneficiaries* 8,859 8,709 Terminated vested Terminated non-vested 1, Inactive-non-contributing employees Active-contributing employees: Vested 8,589 8,777 Non-vested Total 19,921 19,590 *Includes beneficiaries of the Survivorship account. Benefit Provisions Retirement/Disability Fund The retirement fund consists of both defined contribution and defined benefit elements. The members vest in the defined contribution element (annuity) after one year of service. Members vest in the defined benefit element (pension) only after qualifying for retirement and meeting the criteria for the formula pension. Generally, new and returning employees of the Department become eligible for Plan membership on the first day of the payroll period following entry into Department service. New eligible employees must complete 26 weeks of continuous service before becoming entitled to disability andlor death benefits. The right to death benefits is effective upon an employees' date for membership. Qualification for disability benefits occurs one day after an employee's effective membership date and payment of premium. Members are eligible for normal retirement at age 60 with at least five years of service. Early retirement at age 55 is generally available if the member has been with the Department for 10 of the last 12 years before retirement. Members with 30 or more years may retire at age 50 and receive unreduced benefits within a certain limited period (this option expired on October 31, 2005). Upon qualifying for retirement, members will also qualify for a formula pension if they 28

32 NOTES TO THE FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE 1 - PLAN DESCRIPTION AND CONTRIBUTION INFORMATION (Continued) have been employed by the Department for at least five years before retirement and have been a contributing member of the Plan for at least four of five years immediately preceding retirement or while eligible to retire (or during any of those four years if they were receiving either disability benefits under the Plan or payments under any Workers' Compensation Law). Eligible members are entitled to an annual retirement benefit, payable monthly for life currently in an amount equal to a retirement factor of 2.1 % of their highest average salary, for each year of credited service. Members who have at least 30 years of service credit and are at least 55 years of age (and represented by a bargaining unit that has negotiated this benefit) are entitled to a retirement factor of 2.3 % in the calculation of their retirement allowance. "Highest average salary" is defined as the employee's average salary, excluding overtime, over the highest 26 consecutive payroll periods. Death Benefit Fund The Death Benefit Fund consists of the Insured Lives Death Benefit (IDB), Family Death Benefit (FDB), and Supplemental Family Death Benefit (SFDB). Insured Lives Death Benefit For contributing active members, death benefit coverage begins after completion of 26 weeks of continuous Department service. If the death occurs while an active member of the Plan, the benefit includes a single lump sum distribution equal to fourteen times the member's monthly salary, and the retirement fund contributions plus accrued interest, payable to the beneficiary. For retired members, the benefits include a single lump sum distribution equal to fourteen times the member's full retirement allowance not to exceed $20,000, plus any unpaid retirement allowances due, and the unused portion of the retirement fund contributions upon death (if elected at retirement) payable to the beneficiary. Family Death Benefit Coverage begins after completion of 26 weeks of continuous Department service. The Plan provides a monthly FDB allowance of $416 to each qualified surviving child plus $416 to the spouse, if the spouse has the care of one or more of the member's eligible children. The maximum monthly FDB allowance cannot exceed $1,

33 NOTES TO THE FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE 1- PLAN DESCRIPTION AND CONTRIBUTION INFORMATION (Continued) Supplemental Family Death Benefit Contributions The SFDB program supplements the FDB. Coverage begins after enrollment and payment of premiums for 39 consecutive biweekly payroll deductions. The Plan provides for an additional monthly SFDB allowance of $520 to each qualified surviving child plus $520 to the spouse, if the spouse has the care of one or more of the member's eligible children. The maximum SFDB allowance cannot exceed $1,066. Retirement/Disability Fund Covered employees are required to contribute 6% of their annual covered payroll upon becoming a Plan member on or after June 1, Employees entering the Plan before June 1, 1984 contribute an amount based upon an entry-age percentage rate. If an employee leaves or dies while employed, employee contribution plus credited interest is refundable. After one year of membership, the employee may leave his or her contribution on account with the Plan along with the Department's matching contributions and receive a money purchase allowance at retirement age. A surviving spouse of an employee who dies while eligible to retire or with at least 25 years of service may elect to receive a monthly allowance from the Retirement Fund for life rather than a refund of the employee's contributions and interest. The Department contributes $1.10 for each $1.00 contributed by members, plus an actuarially determined percentage of covered payroll. Contribution provisions are established and amended by the Retirement Board upon the advice of the Plan actuary. Plan benefits are funded by earnings from investments and by contributions from the Department and members. Each bi-weekly payroll period, eligible members contribute $1.00 each for Temporary Disability and Permanent Total Disability. Death Benefit Fund Insured Lives Death Benefit Contributing active members contribute $1.00 per bi-weekly payroll period. The Department contribution for the IDB for contributing active members was maintained at $0.25 per $100 of payroll for fiscal years 2012 and In addition, the Department currently contributes to the IDB for non-contributing members at $1.35 and $1.44 per $100 of retirement benefits paid for fiscal years 2013 and 2012, respectively. 30

34 NOTES TO THE FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE 1 - PLAN DESCRIPTION AND CONTRIBUTION INFORMATION (Continued) Family Death Benefit The Department contributions have been suspended since July 1, The Department contributions will continue to be suspended as recommended by the Plan's actuary. Supplemental Family Death Benefit Active members contribute $2.25 per bi-weekly payroll period, and retired members contribute $4.90 per month. Member contributions plus earnings from investments are intended to cover the cost of the benefits. Retiree Health Benefits Plan Membership The Retiree Health Benefits Plan's membership consisted of the following at June 30, 2013 and 2012: Current retirees and beneficiaries Current active members Total Benefit Provisions ,326 8,831 16, ,485 8,855 16,340 Retired members of the Plan are eligible to receive a medical and dental subsidy based on their age and years of service at retirement. The retirees pay any health and dental plan premiums in excess of Department subsidy limits that they are eligible for. 31

35 NOTES TO THE FINANCIAL STATEMENTS June 30,2013 and 2012 NOTE 1 - PLAN DESCRIPTION AND CONTRIBUTION INFORMATION (Continued) Contributions The DWP Board establishes the funding policy and funding levels of the RHBF. The Department retains the responsibility and obligation to fund the RHBF to the extent necessary and appropriate as recommended by the Department's actuary, based on funding parameters set by the Department on advice of the actuary. During fiscal years 2013 and 2012, the Department contributed $68.2 million and $102.3 million, respectively, to fund current and future retiree health benefits liabilities and related costs. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting and Reporting The Plan follows the accounting principles and reporting guidelines as set forth by the Governmental Accounting Standards Board (GASB) Statement Nos. 25 and 50 for Retirement Fund and the Insured Lives portion of the Death Benefit Fund, and GASB Statement No. 43 for the RHBF. The financial statements are prepared using the accrual basis of accounting and reflect the overall financial operations of the Plan. Members' and Department's contributions are recognized as revenues in the period in which the employee services are performed and when due, and benefits and refunds are recognized when due and payable in accordance with the terms of each benefit fund. Other expenses are recognized when incurred. The net appreciation (depreciation) in fair value of investments held by the Plan is recorded as an increase (decrease) to investment income based on the valuation of investments. 32