LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY RETIREMENT INCOME PLANS FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES

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1 LOS ANGELES COUNTY METROPOLITAN TRANSPORTATION AUTHORITY FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES JUNE 30, 2015 AND 2014

2 TABLE OF CONTENTS FINANCIAL SECTION PAGE Independent Auditor s Report 3 Management s Discussion and Analysis 5 Financial Statements: Statements of Fiduciary Net Position 9 Statements of Changes in Fiduciary Net Position 11 Notes to Financial Statements 13 REQUIRED SUPPLEMENTARY INFORMATION Exhibit A - Schedule of Changes in the LACMTA s Net Pension Liability and Related Ratios for the Year Ended June 30, 2015 and Exhibit B - Schedule of Contributions for the Year Ended June 30, 2015 and Exhibit C - Schedule of Investment Returns for the Year Ended June 30, 2015 and Notes to Required Supplementary Information 35 SUPPLEMENTARY SCHEDULES Exhibit D - Schedule of Revenues by Source for Fiscal Years 2007 to Exhibit D1 - Schedule of Expenses by Type for Fiscal Years 2007 to Exhibit E - Schedules of Administrative and Investment Expenses for the Years Ended June 30, 2015 and

3 U.S. BANK TOWER 633 WEST 5TH STREET, SUITE 3320 LOS ANGELES, CA (213) TELEPHONE (213) FAX SIMPSON & SIMPSON CERTIFIED PUBLIC ACCOUNTANTS FOUNDING PARTNERS BRAINARD C. SIMPSON, CPA MELBA W. SIMPSON, CPA INDEPENDENT AUDITOR S REPORT The Joint Investment Board Los Angeles County Metropolitan Transportation Authority Retirement Income Plans We have audited the accompanying financial statements of the United Transportation Union (UTU), the Transportation Communication Union (TCU), the Amalgamated Transit Union (ATU), the Non- Contract Employees (NC), and the American Federation of State, County and Municipal Employees (ASFCME) (collectively referred to as the Los Angeles County Metropolitan Transportation Retirement Income Plans), administered by the Los Angeles County Metropolitan Transportation Authority Retirement System which comprise the statements of fiduciary net position as of June 30, 2015 and 2014, and the related statements of changes in fiduciary net position for the years then ended, and the related notes to the financial statements for each plan. 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 the respective financial statements for each plan 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 audits to obtain reasonable assurance about whether the financial statements for each plan 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. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the fiduciary net position of the United Transportation Union (UTU), the Transportation Communication Union (TCU), the Amalgamated Transit Union (ATU), the Non-Contract Employees (NC), and the American Federation of State, County and Municipal Employees (ASFCME), as of June 30, 2015 and 3

4 2014, and the respective changes in fiduciary net position for the years then ended in conformity with accounting principles generally accepted in the United States of America. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management s Discussion and Analysis on pages 5 through 8, the Schedule of Changes in the Employer s Net Pension Liability and Related Ratios on page 30, the Schedule of Contributions on page 32 and the Schedule of Investment Returns on page 34 be presented to supplement the respective basic financial statements of each plan. Such information, although not a part of the respective 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 respective 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 respective basic financial statements, and other knowledge we obtained during our audit of the respective 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 opinions on the respective financial statements collectively referred to as the Los Angeles County Metropolitan Transportation Retirement Income Plans. The supplementary schedules, listed in the table of contents, on pages 36 through 40 (Schedules), are presented for purposes of additional analysis and are not a required part of the respective basic financial statements for each plan. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the respective basic financial statements. The Schedules have been subjected to the auditing procedures applied in the audits of the respective 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 respective basic financial statements or to the respective 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 Schedules are fairly stated in all material respects in relation to the respective basic financial statements taken as a whole. Los Angeles, California November 9,

5 Management s Discussion and Analysis (Unaudited) We are presenting the overview and analysis of the financial activities of the Los Angeles County Metropolitan Transportation Authority ("LACMTA") Retirement Plans for the years ended June 30, 2015 and The LACMTA Retirement Plans is comprised of 1) the United Transportation Union (the "UTU"), 2) the Transportation Communication Union (the "TCU"), 3) the Amalgamated Transit Union (the "ATU"), 4) the Non-Contract Employees (the "NC"), and 5) the American Federation of State, County and Municipal Employees (the "AFSCME"); herein collectively known as the Plans. FINANCIAL HIGHLIGHTS The fiscal year ended June 30, 2015 Plans fiduciary net position was $1,225,241,152. All of the fiduciary net position was available to meet the Plans obligations to Plans participants and their beneficiaries. Total Plans fiduciary net position increased by $7,743,452 or.64%. As of December 31, 2014, and January 1, 2015 (ATU), the funding ratio for each of the Retirement Plans based on the last actuarial valuation, were as follows: a) UTU 69.4%, b) TCU 69.3%, c) ATU 66.2%, d) NC 73.4%, and e) AFSCME 79.3%. Additions to the Plans fiduciary net position decreased from $262,444,925 to $93,511,553 over the prior year, or approximately (64.37%). Deductions from the Plans fiduciary net position increased from $84,955,747 to $85,768,101 over the prior year, or approximately (.96%). The assets of the Plans were invested under the oversight of the Investment Board. The Plans' assets were up by 5.0% from $1,292,029,413 to $1,356,314,404. OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis is intended to serve as an introduction to the financial statements of the Plans which include: 1) Statements of Fiduciary Net Position 2) Statements of Changes in Fiduciary Net Position 3) Notes to the Financial Statements The Statements of Fiduciary Net Position provides information about assets, deferred outflows of resources, liabilities, deferred inflows of resources, and fiduciary net position, as applicable, as of the end of the pension plans reporting period. It indicates the amount of assets available for payment to retirees, beneficiaries, and any current liabilities owed at this time. The Statements of Changes in Fiduciary Net Position reports additions to, deductions from, and net increase (or decrease) in fiduciary net position for the pension plans reporting period. 5

6 Management s Discussion and Analysis (Unaudited) 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. The Notes to the Plans Financial Statements provide additional information essential to a full understanding of the data presented in the financial statements. These notes are presented in pages 13 to 28 of this report. Required Supplementary Information: This report presents certain required supplementary information concerning the Plans' net pension liability. The report also provides information on employer contributions, and the Plans' investment return. The required supplementary information is shown on pages 30 to 34 of this report, and the notes to the required supplementary information is shown on pages 35 to 36. Supplementary Information: Supplemental information is also available in this report. Its inclusion is to provide a better understanding of the Plans' financial activities. The supplemental information is shown on pages 38 to 42 of this report. FINANCIAL ANALYSIS Plans Fiduciary Net Position A summary of the Plans fiduciary net position is presented below Condensed Combined Statement of Fiduciary Net Position 2015/ / % change % change Cash and short term investments $ 85,579,124 $ 26,085,961 $ 15,558, % 67.7% Prepaid Insurance 43,376 34,578 34, % 1.3% Receivables 88,375,115 62,032,618 48,247, % 28.6% Investments 1,182,316,789 1,203,876,256 1,047,832, % 14.9% Total Assets 1,356,314,404 1,292,029,413 1,111,673, % 16.2% Liabilities 131,073,252 74,531,713 71,665, % 4.0% Total plan fiduciary net position $ 1,225,241,152 $ 1,217,497,700 $ 1,040,008, % 17.1% Fiduciary net position for 2015 increased by $7.7 million or 0.6% from the prior year to $1,225 million. Cash and short term investments increased by $59.5 million or 228.1% to $85.6 million over the prior year. The increase in short term investments was brought on by an outlook of increased market volatility due to accommodating foreign monetary policy that made domestic high quality, liquid short term investments more suitable. Receivables increased by $26.3 million or 42.5% from the prior year to $88.4 million due to timing differences on settlement of securities sold in the current fiscal year offset in part by a decrease in interest and dividends in current fiscal year. 6

7 Management s Discussion and Analysis (Unaudited) Investments decreased by $21.6 million or (1.8%) from the prior year to $1,182.3 million due mainly to unrealized losses in excess of realized gains from investing activities and depreciation in the fair value of investments through the fiscal year ended June 30, Liabilities increased by $56.5 million or 75.9% from the prior year to $131.0 million due mostly to an increase in pending trades awaiting settlement at year-end. Fiduciary net position for 2014 increased by $177.5 million or 17.1% from the prior year to $1,217.5 million. Cash increased by $10.5 million or 67.7% to $26.1 million over the prior year due to timing differences on allocations to new investments as well as accumulation of funds for benefit payments. Receivables increased $13.8 million or 28.6% from the prior year to $62.0 million due mainly to timing differences on settlement of securities sold in the current fiscal year. Investments increased $156.0 million or 14.9% from the prior year to $1,203.9 million due to realized gains from investing activities and appreciation in the fair value of investments through the fiscal year ended June 30, Changes in Plans Fiduciary Net Position Condensed Combined Statement of Changes in Fiduciary Net Position 2015/ / % change % change Additions Contributions $ 78,854,245 $ 81,535,192 $ 76,990, % 5.9% Net investment income 14,657, ,909, ,679, % 46.3% Total additions 93,511, ,444, ,669, % 30.8% Deductions (85,768,101) (84,955,747) (79,703,744) 1.0% 6.6% Net increase in plan fiduciary net position 7,743, ,489, ,965, % 46.7% Fiduciary net position, beginning 1,217,497,700 1,040,008, ,042, % 13.2% Fiduciary net position, ending $ 1,225,241,152 $ 1,217,497,700 $ 1,040,008, % 17.1% Additions to Plans Fiduciary Net Position Additions needed to fund benefit payments are accumulated through contributions from the employer and employees and from income generated from the Plans investing activities. Contributions for fiscal year 2015 totaled $78.9 million, down $2.7 million or (3.3%) over the prior year. The decrease in contributions was due to a decrease in employer contribution rates adopted by the Plans, as recommended by the Plans actuaries offset by increases in employee contributions. Net investment income amounted to $15 million, down $166.3 million or (91.9%) over the prior year. The decrease in net investment income is mostly attributable to unrealized losses from investing activities and net depreciation in the fair value of investments due to adverse market conditions in the current year. Contributions for fiscal year 2014 totaled $81.5 million, up by $4.5 million or 5.9% over the prior year. The increase in contributions was due to an increase in contribution rates adopted by the Plans, as recommended by the Plans actuaries. Net investment income amounted to $180.9 million, up $57.2 million or 46.3% over the prior year. The increase in net investment income is mostly attributable to realized gains from investing activities and net appreciation in the fair value of investments. 7

8 Management s Discussion and Analysis (Unaudited) Deductions from Plans Fiduciary Net Position Costs associated with the Plans include benefit payments as designated by the Retirement Plans, refund of contributions due to terminations, member deaths, and administrative costs of operating the Plans. Deductions for the fiscal year ended June 30, 2015 totaled $85.8 million, up $.81 million or 1.0% over the prior year. The increase was due primarily to current year increases to retiree benefit payments offset by decreases in lump sum retiree benefit payments. Deductions for the fiscal year ended June 30, 2014 totaled $85 million, up $5.3 million or 6.6% over the prior year. The increase was due primarily to increased retiree benefit payments as a result of more retirees that opted for lump sum payments over annuities. Net Pension Liability The Plans are subject to the provisions of GASB Statement No. 67, Financial Reporting for Pension Plans, beginning with the fiscal year ended June 30, 2014, which has been implemented, and the Plans employer, LACMTA is subject to the provisions of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, which will be in effect in the current year, fiscal year ended June 30, These new standards have required LACMTA to recognize their long-term obligation for pension benefits as a liability on their balance sheet, to recognize their annual pension expense as a comprehensive measurement of the annual cost of pension benefits, and expands note disclosures and Required Supplementary Information for pension plans and LACMTA. GASB requires the use of one actuarial cost method, the Entry Age method which is different from the method LACMTA uses for funding purposes. For the UTU, TCU, Non-Contract, and AFSCME the actuarial method used for funding is the Projected Unit Credit. For ATU, the actuarial method is the Entry Age method. This means that the Total Pension Liability (TPL) measure for financial reporting shown in this report is determined on a different basis as LACMTA s Actuarial Accrued Liability (AAL) measure for funding. This is a conceptual shift by the GASB in the measurement of pension liabilities to provide a consistent, standardized methodology that allows comparability of data and increased transparency of the pension liability across all plans. The Plans have complied with GASB Statement No. 67 for the fiscal year ended June 30, Based on the December 31, 2014 and January 1, 2015 (ATU), and the December 31, 2013 and January 1, 2014 (ATU) actuarial valuations, the Net Pension Liability (NPL) of each of the Retirement Plans on a market basis as of June 30, 2015 and 2014 are as follows: Plan UTU $ 209,685,668 $ 142,758,279 TCU 40,454,347 28,569,595 ATU 110,491,688 66,677,677 Non-Contact 34,578,976 21,206,563 AFSCME 12,261,943 4,298,522 Total $ 407,472,622 $ 263,510,636 See Note 4 - Net Pension Liability and the Required Supplementary Information section of this report for further information. 8

9 Statements of Fiduciary Net Position June 30, 2015 and 2014 UTU TCU ATU ASSETS Cash and short term investments $ 37,742,307 11,616,057 $ 7,750,758 $ 2,307,481 $ 27,599,045 $ 8,135,211 Prepaid expenses 19,149 15,389 3,910 3,032 13,908 10,725 Receivables Member contributions 512, ,144 71,695 49, , ,048 Securities Sold 36,834,603 25,544,658 7,564,351 5,074,339 26,935,288 17,889,995 Interest and Dividends 748, , , , , ,716 Receivable from Other Plans Receivable from sponsor ,381 67, , ,367 Total Receivables 38,095,108 26,753,858 7,862,087 5,352,525 27,893,779 18,809,126 Investments at Fair Value Fixed income and Derivatives [Cost $247,474,107] 108,493, ,230,874 22,280,230 23,088,777 79,335,863 81,401,353 Domestic stocks[ Cost $125,830,537] 78,237,513 79,353,418 16,066,851 15,763,225 57,211,146 55,574,525 Non-Domestic stocks [Cost $9,176,171] 4,340,588 3,447, , ,859 3,174,053 2,414,527 Pooled investments [Cost $612,736,557] 330,356, ,053,154 67,841,987 66,954, ,573, ,052,451 Total investments 521,428, ,085, ,080, ,491, ,294, ,442,856 Total assets 597,284, ,470, ,697, ,154, ,800, ,397,918 LIABILITIES Accounts payable and other liabilities 759,920 1,034, , , , ,211 Payable to Other Plans 959, , , , , ,399 Securities purchased 56,406,657 31,427,439 11,583,668 6,242,929 41,247,343 22,009,953 Total liabilities 58,125,648 33,452,800 11,876,623 6,603,404 42,148,708 23,123,563 NET POSITION HELD IN TRUST FOR PENSION BENEFITS $ 539,159,053 $ 541,017,590 $ 110,820,583 $ 107,550,695 $ 394,652,115 $ 379,274,355 The accompanying notes are an integral part of these financial statements. 9

10 Statements of Fiduciary Net Position June 30, 2015 and 2014 Non-Contract AFSCME Total ASSETS Cash and short term investments $ 8,468,670 $ 2,716,757 $ 4,018,344 $ 1,310,455 $ 85,579,124 $ 26,085,961 Prepaid expenses 4,331 3,654 2,078 1,778 43,376 34,578 Receivables Member contributions , ,720 Securities Sold 8,264,998 5,974,372 3,921,702 2,881,797 83,520,942 57,365,161 Interest and Dividends 167, ,923 79,664 91,612 1,696,615 1,823,619 Receivable from Other Plans 687, , , ,185 1,557,677 1,482,392 Receivable from sponsor 459, ,654 73,010 63, , ,726 Total Receivables 9,579,744 7,273,156 4,944,397 3,843,953 88,375,115 62,032,618 Investments at Fair Value Fixed income and Derivatives [Cost $247,474,107] 24,343,932 27,184,017 11,551,079 13,112, ,004, ,017,502 Domestic stocks[ Cost $125,830,537] 17,555,040 18,559,137 8,329,784 8,952, ,400, ,202,487 Non-Domestic stocks [Cost $9,176,171] 973, , , ,942 9,842,104 7,742,300 Pooled investments [Cost $612,736,557] 74,125,838 78,829,818 35,172,357 38,024, ,069, ,913,967 Total investments 116,998, ,379,304 55,515,353 60,477,949 1,182,316,789 1,203,876,256 Total assets 135,051, ,372,871 64,480,172 65,634,135 1,356,314,404 1,292,029,413 LIABILITIES Accounts payable and other liabilities 178, ,290 81, ,965 1,615,806 2,473,309 Payable to Other Plans ,557,677 1,482,392 Securities purchased 12,656,603 7,350,233 6,005,498 3,545, ,899,769 70,576,012 Total liabilities 12,835,544 7,644,523 6,086,729 3,707, ,073,252 74,531,713 NET POSITION HELD IN TRUST FOR PENSION BENEFITS $ 122,215,958 $ 127,728,348 $ 58,393,443 $ 61,926,712 $ 1,225,241,152 $ 1,217,497,700 The accompanying notes are an integral part of these financial statements. 10

11 Statements of Changes in Fiduciary Net Position Years ended June 30, 2015 and 2014 UTU TCU ATU ADDITIONS Contributions Employer $ 19,780,797 $ 23,567,900 $ 4,740,825 $ 5,466,116 $ 21,256,604 $ 20,125,777 Member 16,528,105 15,920,467 2,300,208 1,769,032 8,606,590 7,647,746 Transfers to Other Plans (959,071) (990,901) (140,699) (122,092) (457,907) (369,399) Total contributions 35,349,831 38,497,466 6,900,334 7,113,056 29,405,287 27,404,124 Investment Income Net appreciation in fair value of investments 1,911,844 77,609, ,829 15,208,779 1,428,835 53,734,602 Interest and dividend income 6,257,340 4,435,810 1,264, ,533 4,481,161 3,075,761 Other Income 204, ,463 29, , , ,855 Total investment income 8,373,490 82,482,653 1,688,814 16,351,727 6,131,978 56,924,218 Investment Expense (1,927,643) (1,767,958) (394,846) (347,199) (1,398,177) (1,229,369) Net investment income 6,445,847 80,714,695 1,293,968 16,004,528 4,733,801 55,694,849 Total additions 41,795, ,212,161 8,194,302 23,117,584 34,139,088 83,098,973 DEDUCTIONS Benefits and contribution refunds paid to participants and beneficiaries (43,015,910) (40,145,177) (4,715,517) (5,787,153) (18,365,761) (22,250,953) Administrative expenses (638,305) (450,997) (208,897) (192,537) (395,567) (375,729) Total Deductions (43,654,215) (40,596,174) (4,924,414) (5,979,690) (18,761,328) (22,626,682) NET INCREASE (DECREASE) (1,858,537) 78,615,987 3,269,888 17,137,894 15,377,760 60,472,291 NET POSITION HELD IN TRUST FOR PENSION BENEFITS Beginning of Year 541,017, ,401, ,550,695 90,412, ,274, ,802,064 End of Year $ 539,159,053 $ 541,017,590 $ 110,820,583 $ 107,550,695 $ 394,652,115 $ 379,274,355 The accompanying notes are an integral part of these financial statements. 11

12 Statements of Changes in Fiduciary Net Position Years ended June 30, 2015 and 2014 Non-Contract AFSCME Total ADDITIONS Contributions Employer $ 4,186,481 $ 5,073,819 $ 1,454,635 $ 1,964,335 $ 51,419,342 $ 56,197,947 Member ,434,903 25,337,245 Transfers to Other Plans 687, , , , Total contributions 4,874,137 5,749,026 2,324,656 2,771,520 78,854,245 81,535,192 Investment Income Net appreciation in fair value of investments 432,796 18,590, ,705 8,890,561 4,357, ,033,771 Interest and dividend income 1,440,500 1,059, , ,021 14,133,442 9,947,861 Other Income 54,103 47,340 19,740 24, , ,191 Total investment income 1,927,399 19,697, ,295 9,421,700 19,019, ,877,823 Investment Expense (434,036) (421,464) (207,966) (202,100) (4,362,668) (3,968,090) Net investment income 1,493,363 19,276, ,329 9,219,600 14,657, ,909,733 Total additions 6,367,500 25,025,087 3,014,985 11,991,120 93,511, ,444,925 DEDUCTIONS Benefits and contribution refunds paid to participants and beneficiaries (11,660,885) (10,539,987) (6,392,649) (4,834,785) (84,150,722) (83,558,055) Administrative expenses (219,005) (210,982) (155,605) (167,447) (1,617,379) (1,397,692) Total Deductions (11,879,890) (10,750,969) (6,548,254) (5,002,232) (85,768,101) (84,955,747) NET INCREASE (DECREASE) (5,512,390) 14,274,118 (3,533,269) 6,988,888 7,743, ,489,178 NET POSITION HELD IN TRUST FOR PENSION BENEFITS Beginning of Year 127,728, ,454,230 61,926,712 54,937,824 1,217,497,700 1,040,008,522 End of Year $ 122,215,958 $ 127,728,348 $ 58,393,443 $ 61,926,712 $ 1,225,241,152 $ 1,217,497,700 The accompanying notes are an integral part of these financial statements. 12

13 Notes to Financial Statements Years ended June 30, 2015 and 2014 NOTE 1 - DESCRIPTION OF THE PLANS In 1993, the Southern California Rapid Transit District, the former administrator of the Retirement Income Plans (the Plans ) merged with the Los Angeles County Transportation Commission ( LACTC ) to form the Los Angeles County Metropolitan Transportation Authority ( LACMTA ). LACMTA assumed all responsibilities of the plans administrator effective with the merger. The following are summaries of certain provisions of the Plans. Additional information about the Plans is available in the plans agreements, which are available at the plans administrator. The Plans are single-employer, defined benefit plans that were established and administered by the LACMTA to provide pension, disability and death benefits to full-time employees in a work classification covered under collective bargaining agreements with the United Transportation Union (the UTU ), the Transportation Communication Union (the TCU ) and the Amalgamated Transit Union (the ATU ), referred to collectively as the Union Plans. The Non-Contract Employees Plan (the Non-Contract Plan ) provided pension, disability and death benefits to full-time non-represented employees, members of the Brotherhood of Teamsters and members of the American Federation of State, County and Municipal Employees ( AFSCME ). AFSCME commenced representing some employees that were formerly non-represented employees in The Non-Contract Plan also provides deferred pension benefits to the former employees that were represented by the Transit Police Officers Association. Any employees of the Public Transportation Services Corporation hired after August 10, 1997 are not eligible to participate in the Non-Contract Plan. Effective January 1, 2004, the Non-Contract Plan spun-off AFSCME participants into the AFSCME Plan. The AFSCME Plan mirrored the benefit provisions of the Non-Contract Plan on January 1, As agreed to by the parties, the AFSCME Plan received plan assets that were proportional to its Actuarial Accrued Liability. Management of the Plans financial assets is vested in the Pension Investment Board, which consists of eighteen members three appointed by the TCU plan, three appointed by the UTU plan, four appointed by the ATU plan, four appointed by the AFSCME plan, and four appointed by LACMTA. The number of current employees accruing benefits and retirees and beneficiaries receiving benefits as of December 31, 2014, and January 1, 2015 (ATU) is as follows: UTU TCU ATU NC AFSCME Total Retirees and beneficiaries currently receiving benefits and terminated employees entitled to receive benefits 2, ,166 1, ,591 Current employees accruing benefits under the California Public Employees Retirement System N/A N/A N/A Current employees: Vested 1, , ,761 Nonvested 2, , ,769 Total 6,264 1,231 3,215 1, ,417 13

14 Notes to Financial Statements Years ended June 30, 2015 and 2014 NOTE 1 - DESCRIPTION OF THE PLANS (continued) Benefits Provided Union Plans Plans participation is extended to all full-time employees of the LACMTA covered under the collective bargaining agreements between the LACMTA and the UTU, TCU and ATU. The benefits commencing upon a member s termination from service will be calculated based upon final compensation, as defined. For the UTU, TCU and ATU plans, a member with 10 years of service may retire at age 55 or after. Additionally, if the member has 23 years of service, the member may retire at any age and receive a retirement benefit equal to at least 50% of adjusted final compensation. If the member has less than 10 years of continuous service upon termination of employment, the member will receive, in lieu of all other benefits under the Union Plans, a return of accumulated contributions together with interest thereon at the rate of 4-1/2% compounded annually. If the member has at least 10 years of continuous service upon termination of employment, the member will have the option of receiving, in lieu of all other benefits under the Union Plans, a return of accumulated contributions together with interest thereon at the rate of 4-1/2% compounded annually or a deferred retirement income beginning at any time between ages 55 and 65 equal to accrued service retirement benefits calculated under the terms of the Union Plans. Benefit payments are computed as a percentage of the member s adjusted final compensation based on years of service and age at retirement. The minimum monthly benefit is $500, $250, and $500 for UTU, TCU and ATU members, respectively. Should a member die with less than 10 years of service prior to commencement of retirement benefit payments, the member s beneficiary shall receive a return of the member s contributions together with interest thereon at a rate of 5-1/2% compounded annually. In the event of termination, the Union Plans assets are to be distributed according to provisions in the plans agreement, which generally provide the following benefits in the order indicated: benefits attributable to the accumulated contributions of active members, benefits attributable to members who retired at least two years prior to the plans termination date or who become eligible for retirement prior to the plans termination date, benefits attributable to all other retired members and all vested members, and benefits attributable to members not vested. Non-Contract/AFSCME Plans The Non-Contract Plan was extended to all full-time employees of the LACMTA (except for former members of LACTC) hired before August 10, 1997, who were not covered under a collective bargaining agreement, and to members of the Brotherhood of Teamsters and Transit Police Officers Association. All employees who were members of the Non-Contract Plan and subsequently became members of AFSCME have their eligibility, terms and conditions of participation unchanged. The benefits commencing upon a member s termination from service will be calculated based upon final compensation, as defined. 14

15 Notes to Financial Statements Years ended June 30, 2015 and 2014 NOTE 1 - DESCRIPTION OF THE PLANS (continued) All full-time non-contract and AFSCME employees hired after August 10, 1997 participate in the California Public Employees Retirement System. Therefore, there have been no new participants to the AFSCME Plan or Non-Contract Plan. Under the Non-Contract Plan, if a member has less than five years of continuous service, upon termination of employment, the member will receive, in lieu of all other benefits under the Non- Contract Plan, a return of accumulated contributions together with interest thereon at a rate of 4-1/2% compounded annually. If a member has at least five years of continuous service, upon termination of employment, the member will have the option of receiving, in lieu of all other benefits under the Non- Contract Plan, a return of the member s accumulated contributions together with interest thereon at the rate of 4-1/2% compounded annually or a deferred retirement income beginning at any time between ages 50 and 65 equal to accrued service retirement benefits calculated under the terms of the Non- Contract Plan. Benefit payments are computed as a percentage of the member s adjusted final compensation based on years of service and age at retirement. Should a member die with less than 10 years of service prior to commencement of deferred retirement benefit payments, the member s beneficiary shall receive a return of contributions together with interest thereon at a rate of 5-1/2% compounded annually. NOTE 2 - SUMMARY OF ACCOUNTING POLICIES Basis of Accounting The accompanying financial statements are prepared on the accrual basis of accounting. Plans member contributions are recognized in the period in which the contributions are due. MTA contributions to each plan are recognized when due and the MTA has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of each plan. Investment Valuation and Income Recognition The Plans equity securities, pooled investments and fixed-income securities are reported at fair value based on quoted market prices as of fiscal year end. When market prices are not readily available, other market assumptions through actual traded prices and through contracts with the broker-dealer community are used to determine fair values. For investments in mutual funds, fair value is the aggregate value of all the assets in the related fund, less liabilities, as of the valuation date. For fixed income investments, fair value is determined primarily by discounting the future cash flows to the net present value of the security. Investment income is recognized on an accrual basis. Gains and losses on sales and exchanges of securities are recognized on the trade date. Gains or losses on sales of securities are determined on the basis of average cost. Basis of Presentation The financial statements have been presented in accordance with accounting principles generally accepted in the United States of America, as outlined in the Governmental Accounting Standards Board (GASB). 15

16 Notes to Financial Statements Years ended June 30, 2015 and 2014 NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued) Contribution Transfers Contribution transfers consist primarily of asset transfers among the Plans as a result of employee transfers. Pursuant to a joint resolution adopted by the Pension Plans Administrative Committee on June 24, 1981, plan assets associated with employees who transfer from one plan to another during their course of employment with the Plans are to be transferred to the new plan annually, commencing with the second year of such employees transfer. Income Taxes No provision for income taxes has been made in the accompanying financial statements, as the Plans are exempt from federal and state income taxes. 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 plan fiduciary net position and changes therein, disclosure of contingent assets and liabilities and the actuarial present value of accumulated plan benefits presented in the financial statements. Actual results could differ from those estimates. Derivatives To the extent permitted by the investment policy, investment managers are authorized to use derivatives for investment purposes. Derivatives are instruments whose value is derived from an underlying security or index. The Plans derivatives include interest rate swaps and option contracts. Benefit Payments Benefit payments to participants are recorded upon distribution. Reclassifications Certain 2014 items have been reclassified to conform to the 2015 financial statement presentation. The reclassifications had no effect on the fiduciary net position. 16

17 Notes to Financial Statements Years ended June 30, 2015 and 2014 NOTE 3 CASH AND INVESTMENTS As of June 30, 2015 and 2014, the Plans cash and investments consist of the following: Investment Type Equities Domestic Stocks $ 177,400,334 $ 177,550,095 Non-Domestic Stocks 9,842,104 7,742,300 Mutual funds 716,827, ,913,967 Real estate investment trust 2,753, ,392 Total Equities 906,823, ,858,754 Fixed Income Asset-backed securities 1,187,617 1,357,530 Corporate bonds 56,737,585 45,094,200 Mortgage backed securities 82,386,498 73,789,855 Municipals 9,682,487 9,964,053 Short Term Investment Funds (STIF) 29,488,538 17,956,484 U.S. Treasuries 93,723, ,067,547 Total Fixed Income 273,206, ,229,669 Derivatives 2,286,707 (212,167) Total Investments $ 1,182,316,789 $ 1,203,876,256 Cash and Short-term investments 85,579,124 26,085,961 $ 1,267,895,913 $ 1,229,962,217 The Plans cash and short-term investments consist of currency (US and foreign currency) and repurchase agreements (US currency). Credit Risk - Credit risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. According to the Plans investment policy for fixed income securities, the Plans fixed income portfolio shall be comprised of United States Treasuries; obligations of agencies of the United States government; domestic corporations and municipalities; mortgage and mortgage-backed securities; asset backed securities; non-dollar bonds; and cash. The Plans can invest in investment grade income securities where the portfolio maintains an average credit quality of A or better by Moody s Investor Services and Standard and Poor s Corporation, and short-term cash investments with a minimum respective rating of P1 by Moody s Investor Services or A1 by Standard and Poor s Corporation. 17

18 Notes to Financial Statements Years ended June 30, 2015 and 2014 NOTE 3 CASH AND INVESTMENTS (continued) As of June 30, 2015 and 2014 respectively, the credit ratings of the Plans investments are as follows: Standard and Poor's Credit Rating Combined Fair Value Percentage to Total A $ 6,122, % A- 7,815, % A+ 5,729, % AA 2,513, % AA- 6,258, % AA+ 3,420, % AAA 6,829, % B 948, % B- 1,443, % B+ 1,515, % BB 5,302, % BB- 3,447, % BB+ 4,206, % BBB 4,430, % BBB- 12,422, % BBB+ 4,493, % CC 21, % CCC 1,917, % D 440, % Not Rated 193,924, % Total (excluding equities and derivatives) $ 273,206, % s Standard and Poor's Credit Rating Combined Fair Value Percentage to Total A 10,048, % A- 6,601, % A+ 4,697, % AA 2,383, % AA- 4,078, % AA+ 3,641, % AAA 9,201, % B 270, % B- 1,550, % BB 2,504, % BB- 1,595, % BB+ 574, % BBB 13,059, % BBB- 8,571, % BBB+ 5,118, % CC 22, % CCC 2,264, % D 409, % Not Rated 184,635, % Total (excluding equities and derivatives) $ 261,229, % s 18

19 Notes to Financial Statements Years ended June 30, 2015 and 2014 NOTE 3 CASH AND INVESTMENTS (continued) Investments The Plans policy in regard to the allocation of invested assets is established and may be amended by LACMTA s Investment Board. The Investment Board reserves the right to amend in writing the Investment Policy Statement at any time it deems such amendment to be necessary, or to comply with changes in federal law as these changes affect the investment of the Plans assets. In any event, a review of the Investment Policy is undertaken annually. The following was the Board s adopted asset allocation policy as of June 30, 2015: Asset Class Target Allocation Domestic equity 39% International equity 23 Domestic fixed income 29 Real estate 5 Alternative investment 3 Cash 1 Total 100% Custodial Credit Risk - For deposits, custodial credit risk is the risk that in the event of a bank failure, the Plans deposits in the possession of an outside party may not be returned. Deposits are exposed if they are not insured or are not collateralized. As of June 30, 2015 and 2014, there are no deposits at any financial institutions other than at the Plans custodian. For an investment, custodial credit risk is the risk that, in the event of the failure of the counter party, the plan will not be able to recover the value of its investment or collateral securities that are in the possession of an outside party. Investment securities are exposed to custodial credit risk if they are not insured, or are not registered in the Plans name and held by the counter party. As of June 30, 2015 and 2014, investments are held by the Plans custodian in the Plans name. Concentration of Credit Risk - Concentration of credit risk is the risk of loss attributable to the magnitude of a plans investment in a single issuer. According to the Plans investment policy, no more than five percent (5%) of the market value of any single equity portfolio may be invested in one equity security. The Plans aggregate total investment in any company may not exceed five percent (5%) of the company s outstanding voting stock. Convertible securities may be held in equity portfolios and shall be considered equity holdings, but shall not exceed five percent (5%) of the portfolio s market value. Except for securities issued or guaranteed by the United States government and its agencies, or other issuers of sovereign debt, no more than five percent (5%) of any single fixed income portfolio based on market value shall be invested in securities of any one issuer, nor shall any portfolio hold more than five percent (5%) of the aggregate market value of all securities issued by any one entity. 19

20 Notes to Financial Statements Years ended June 30, 2015 and 2014 NOTE 3 CASH AND INVESTMENTS (continued) As of June 30, 2015 and June 30, 2014, the Plans have no securities in any one issuer that exceed five percent (5%) of total investments. However, as of June 30, 2015 and June 30, 2014 respectively, the following co-mingled and mutual funds exceed such threshold. June 30, 2015 Standard Percentage Investment and Poor s to Total Manager Portfolio Name Credit Rating Fair Value Investments PIMCO Pacific Investment Management Company Not Rated 248,425, % State Street Global Advisors SSgA S&P 500 Flagship Non-Lending Fund Not Rated 179,836, % Wellington Wellington Management Company, LLP Not Rated 116,415, % Dodge & Cox Dodge & Cox Stock Fund Not Rated 114,488, % Mondrian Investment Partners Mondrian International Equity Fund LP Not Rated 103,717, % Vontobel Asset Management Inc. Vontobel International Fund Not Rated 103,666, % Morgan Stanley Morgan Stanley Asset Mgmt Not Rated 60,823, % June 30, 2014 Standard Percentage Investment and Poor s to Total Manager Portfolio Name Credit Rating Fair Value Investments Morgan Stanley Morgan Stanley Asset Mgmt Not Rated 212,587, % State Street Global Advisors SSgA S&P 500 Flagship Non-Lending Fund Not Rated 203,318, % Dodge & Cox Dodge & Cox Stock Fund Not Rated 116,644, % Morgan Stanley Morgan Stanley Emerging Market Not Rated 74,154, % Interest Rate Risk - Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Plans have a long-term investment horizon and utilize an asset allocation that encompasses a long-term perspective regarding the capital markets. The Plans currently maintain the interest rate risk consistent with its long-term investment horizon. As of June 30, 2015, the Plans investments have the following maturities: Investment Maturities (in Years) Investment Type Fair Value Less than 1 1 to 5 6 to 10 More than 10 Short term investment funds $ 39,366,963 $ - $ - $ - $ 39,366,963 Asset-backed securities 1,187, ,187,617 Corporate bonds 56,737, ,737,585 Mortgage-backed securities 82,386,498-16,353 1,012,460 81,357,685 Municipals 9,682, ,682,487 U.S. Treasuries 83,845, ,845,339 Total (excluding equities and derivatives) $ 273,206,489 $ - $ 16,353 $ 1,012,460 $ 272,177,676 20

21 Notes to Financial Statements Years ended June 30, 2015 and 2014 NOTE 3 CASH AND INVESTMENTS (continued) As of June 30, 2014, the Plans investments have the following maturities: Investment Maturities (in Years) Investment Type Fair Value Less than 1 1 to 5 6 to 10 More than 10 Short term investment funds $ 17,956,484 $ 17,956,484 $ - $ - $ - Asset-backed securities 1,357, ,169, ,289 Corporate bonds 45,094,200 3,486,962 16,482,820 13,520,490 11,603,928 Mortgage-backed securities 73,789,855-45,872 1,768,661 71,975,322 Municipals 9,964, ,289 9,852,764 U.S. Treasuries 113,067,547 1,603,177 79,192,281 32,272,089 - Total (excluding equities and derivatives) $ 261,229,669 $ 23,046,623 $ 95,720,973 $ 48,841,770 $ 93,620,303 Rate of return. For the year ended June 30, 2015, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 1.4%. As of June 30, 2014, the annual money-weighted rate of return was 17.7%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Foreign Currency Risk. Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair value of an investment or deposit. The Plans investment policy permits it to invest up to fifteen percent (15%) of total investments of the Plans in foreign currency-dominated investments. The Plans positions are 3.01% and 0.94% as of June 30, 2015 and 2014 respectively. As of June 30, 2015 and 2014, the Plans exposure to foreign currency risk is $35,635,241 and $11,330,607 respectively. 21

22 Notes to Financial Statements Years ended June 30, 2015 and 2014 NOTE 4 - NET PENSION LIABILITY OF LACMTA The components of the net pension liability of the Plans at June 30, 2015 are as follows: Plan Total pension liability Plans fiduciary net position Plans net pension liability Plans fiduciary net position as a % of the total pension liability UTU $ 748,844,721 $ (539,159,053) $ 209,685, % TCU 151,274,930 (110,820,583) 40,454, % ATU 505,143,803 (394,652,115) 110,491, % Non-Contact 156,794,934 (122,215,958) 34,578, % AFSCME 70,655,386 (58,393,443) 12,261, % Total $ 1,632,713,774 $ (1,225,241,152) $ 407,472, % Actuarial assumptions as of June 30, The total pension liability for TCU, UTU, Non-Contract, and AFSCME were determined by an actuarial valuation with a measurement date of December 31, 2014, using the following actuarial assumptions, applied to all periods included in the measurement with a liability roll forward to June 30, The total pension liability for ATU was determined by an actuarial valuation with a measurement date of January 1, 2015, using the following actuarial assumptions, applied to all periods included in the measurement with a liability roll forward to June 30, The actuarial assumptions used in the December 31, 2014 valuation for TCU, UTU, Non-Contract, and AFSCME were based on an actuarial experience study for the period from January 1, 2011 to December 31, The actuarial assumptions used in the January 1, 2015 valuation for ATU were based on the results of an actuarial experience study for the period from January 1, 2007 to December 31, The components of the net pension liability of the Plans at June 30, 2014 are as follows: Plan Total pension liability Plans fiduciary net position Plans net pension liability Plans fiduciary net position as a % of the total pension liability UTU $ 683,775,869 $ (541,017,590) $ 142,758, % TCU 136,120,290 (107,550,695) 28,569, % ATU 445,952,032 (379,274,355) 66,677, % Non-Contact 148,934,911 (127,728,348) 21,206, % AFSCME 66,225,234 (61,926,712) 4,298, % Total $ 1,481,008,336 $ (1,217,497,700) $ 263,510, % Actuarial assumptions as of June 30, The total pension liability for TCU, UTU, Non-Contract, and AFSCME were determined by an actuarial valuation with a measurement date of December 31, 2013, using the following actuarial assumptions, applied to all periods included in the measurement with a liability roll forward to June 30,

23 Notes to Financial Statements Years ended June 30, 2015 and 2014 The total pension liability for ATU was determined by an actuarial valuation with a measurement date of January 1, 2014, using the following actuarial assumptions, applied to all periods included in the measurement with a liability roll forward to June 30, The actuarial assumptions used in the December 31, 2013 valuation for TCU, UTU, Non-Contract, and AFSCME were based on an actuarial experience study for the period from January 1, 2008 to December 31, The actuarial assumptions used in the January 1, 2014 valuation for ATU were based on the results of an actuarial experience study for the period from January 1, 2007 to December 31, Projected salary increases based on age groups as of June 30, 2015 are as follows (projected increases remained unchanged from June 30, 2014): For TCU, UTU, Non-Contract and AFSCME: Age Rate Age Rate % * % * % * % % * % * not applicable for Non-Contract and AFSCME For ATU: Age Rate Age Rate % % % % % % % % 23