AgriBank District Retirement Plan. Financial Statements December 31, 2017 and 2016

Transcription

1 AgriBank District Retirement Plan Financial Statements December 31, 2017 and 2016

2 CliftonLarsonAllen LLP CLAconnect.com INDEPENDENT AUDITORS' REPORT Participants and Farm Credit Foundations Trust Committee AgriBank District Retirement Plan St. Paul, Minnesota Report on the Financial Statements We have audited the accompanying financial statements of AgriBank District Retirement Plan (the Plan), which comprise the statements of net assets available for benefits as of December 31, 2017 and 2016, and the related statements of changes in net assets available for benefits for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 auditors 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 Plan 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 Plan s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

3 Participants and Farm Credit Foundations Trust Committee AgriBank District Retirement Plan Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial status of the Plan as of December 31, 2017 and 2016, and the changes in financial status for the years then ended, in accordance with accounting principles generally accepted in the United States of America. CliftonLarsonAllen LLP Minneapolis, Minnesota August 30,

4 Statements of Net Assets Available for Benefits AgriBank District Retirement Plan December 31, 2017 and 2016 Assets Investments, at fair value Short-term investment funds $ 3,157,677 $ 2,733,209 Plan interest in Master Trust 1,015,724, ,439,988 Total assets 1,018,882, ,173,197 Liabilities Administrative and other expenses payable 413, ,422 Total liabilities 413, ,422 Net assets available for benefits $ 1,018,468,868 $ 895,633,775 See accompanying notes to the financial statements. 3

5 Statements of Changes in Net Assets Available for Benefits AgriBank District Retirement Plan Years Ended December 31, 2017 and Net assets available for benefits, beginning of year $ 895,633,775 $ 800,324,688 Net investment income Master Trust income 138,057,887 63,257,695 Contributions Employer 90,000,000 90,000,000 Deductions Benefits paid to participants 103,682,548 56,429,695 Administrative and other expenses 1,540,246 1,518,913 Total deductions 105,222,794 57,948,608 Net increase 122,835,093 95,309,087 Net assets available for benefits, end of year $ 1,018,468,868 $ 895,633,775 See accompanying notes to the financial statements. 4

6 Notes to Financial Statements AgriBank District Retirement Plan December 31, 2017 and 2016 NOTE 1: DESCRIPTION OF THE PLAN The following description of the AgriBank District Retirement Plan (the Plan) provides general information regarding the Plan. Refer to the Plan document for a complete description of Plan provisions. Plan Provisions The Plan is a noncontributory defined benefit pension plan offered to eligible employees of AgriBank, FCB (AgriBank) and affiliated associations, including Farm Credit Foundations and excluding Farm Credit Services of America, ACA (collectively, the Employers). Generally, all full-time and part-time employees of the Employers hired before January 1, 2007, are eligible to participate in the Plan. All Plan participants are fully vested after completing five years of credited service. Credited service includes all years of employment as a benefits eligible employee of the Employers. The Plan was closed to new participants on January 1, Since December 31, 2006, no new participants have joined the Plan; therefore, all Plan participants have completed five years of service and are fully vested in plan benefits they have earned based on current credited service. Employees hired on or after January 1, 2007, are not eligible to participate in the Plan; rather, they are eligible for enhanced benefits under the Farm Credit Foundations Defined Contribution / 401(k) Plan (the 401(k) Plan). The Plan was most recently restated effective January 1, 2014, and amended effective January 1, The amendment eliminated the Coordinating Committee whose responsibilities were assigned to the Plan Sponsor Committee. Plan benefits for employees hired between October 1, 2001, and December 31, 2006, are based on a cash balance formula. Cash balance retirement benefits are calculated based on salary and credited service and adjusted for interest earned. Benefits for employees hired prior to October 1, 2001, who did not elect the cash balance formula are based on a final average pay formula. Final average pay retirement benefits are calculated based on credited service and a percentage of final average pay, subject to certain limitations. Retirement benefits are paid from Plan assets with several benefit payment options available, as defined in the Plan document. Plan Governance The Plan Sponsor Committee and the Farm Credit Foundations Trust Committee (Trust Committee) provide consideration and oversight of the benefit plans offered by participating employers, as defined by the Farm Credit Foundations Administrative Agreement. As of December 31, 2017, Farm Credit Foundations served 37 participating employers across 29 states with over 8,700 active employees. The governance committees are either elected or appointed representatives (senior leadership and/or Board of Director members) from the participating organizations. The Plan Sponsor Committee is responsible for decisions regarding benefits at the direction of the participating employers. The Trust Committee is responsible for fiduciary and plan administrative functions. Funding Policy The Employers contribute the actuarial amounts necessary to provide the Plan with sufficient assets to cover benefits to be paid to participants. The Plan s funding policy is to contribute amounts which represent normal cost, plus amortization of the unfunded accrued liability over five years, plus interest, or other Internal Revenue Service (IRS) limitations for each plan. Other factors in consideration beginning January 1, 2016 include: The funding rate is decoupled from the accounting Long-term rate of return (LTROR) assumption The funding interest rate will be lesser of LTROR or 6% Contribute the greater of policy contribution or a certain planned contribution amount that has a 50% likelihood of attaining 80% funded of the projected benefit obligation in four years ( ); policy contribution thereafter Form of Distribution Except as otherwise provided in the Plan document, each participant may elect to have his/her retirement benefit paid in any of the following forms: Qualified Joint and Survivor Annuity If the participant is married on the date on which the participant receives his/her first benefit payment, the participant will receive his/her benefit under the Plan in the form of a joint and survivor annuity. 5

7 Optional Payment Methods The participant may choose from any of the following optional payment methods by completing a distribution election form within the required time period at the time of retirement: a. Joint and 50% survivor annuity b. Joint and 100% survivor annuity c. Five-year certain and life d. Ten-year certain and life e. Joint and 50% survivor annuity with ten-year certain benefit f. Joint and 100% survivor annuity with ten-year certain benefit g. Combination lump sum payment and annuity benefit h. Lump sum payment i. Single life annuity (for married participants) Regulatory Compliance The Department of Labor has determined the Plan to be a governmental plan; therefore, the Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). Plan Administration The Plan provides that an employee of a participating employer who has satisfied the Plan's eligibility requirements, will have rights to benefits under the Plan. Farm Credit Foundations serves as Plan Administrator. The Trust Committee has primary responsibility for administration and interpretation of the Plan and investment of the Plan assets. The Trust Committee is the trustee for the Plan assets invested in the Master Trust. The trustee supervises and administers all investments and related activities, including such functions as purchases, sales, reinvestment, and collection of investment income. Certain income and expense items of the investments in the Master Trust are recorded at the Master Trust level. These include investment expenses, interest income, and dividends. Bank of New York Mellon is the custodian for the Plan assets and John Hancock Retirement Plan Services, LLC is the third-party administrator for the Plan. Plan Termination Although there has been no expression of intent to do so, the Plan Sponsor Committee at the direction of the participating employers in this plan, has the right under the Plan to discontinue contributions at any time and to terminate the Plan subject to the plan provisions. Upon either full or partial termination of the Plan, the present value of benefits due to participants would be distributed to participants. Plan assets in excess of obligations would be returned to the Employers. Obligations and liabilities in excess of assets would be the responsibility of the Employers. As the Plan is not subject to ERISA, the Plan s benefits are not insured by the Pension Benefit Guaranty Corporation. Accordingly, the amount of accumulated benefits that participants would receive in the event of the Plan s termination is contingent on the sufficiency of the Plan s net assets to provide benefits at that time. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting The accompanying financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). Accordingly, income is recorded in the year earned and expenses are recorded in the year incurred. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and changes therein, as well as disclosures of contingent assets and liabilities. Actual results could differ from those estimates. Refer to Note 5 for a description of the method and assumptions used to determine the actuarial present value of accumulated plan benefits and any changes made to the method and assumptions between December 31, 2017, and Fair Value Measurements The accounting guidance describes three levels of inputs that may be used to measure fair value. Level 1: Unadjusted quoted prices in active markets for identical assets that the Plan has the ability to access at the measurement date. 6

8 Level 2: Observable inputs other than quoted prices included within Level 1 that are observable for the asset either directly or indirectly. Level 2 inputs include: Quoted prices for similar assets in active markets Quoted prices for identical or similar assets in markets that are not active so that they are traded less frequently than exchange-traded instruments, quoted prices are not current, or principal market information is not released publicly Inputs other than quoted prices that are observable for the asset Inputs derived principally from or corroborated by observable market data by correlation or other means Level 3: Unobservable inputs are supported by little or no market activity and are significant to the fair value of the assets. These unobservable inputs reflect the Plan s own judgments about assumptions that market participants would use in pricing the asset. Level 3 assets include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. The asset s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. There have been no changes in the valuation methodologies used at December 31, 2017, and Investment Valuation and Income Recognition The Plan s investments are reported at fair value. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The following is a description of the valuation methodologies used for assets held by the Plan through the Master Trust measured at fair value: Short-term investment funds, money market funds, and pending investment trades are valued at cost, which approximates fair value. One of the commingled trust funds and the Cayman Islands exempted company are valued at net asset value (NAV) of units held. The NAV is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund, less its liabilities. The other commingled trust funds are valued at their published NAV of shares, which is based on observable market prices for the underlying assets, held by the Plan at year-end. NAV is a readily determinable fair value and is the basis for current transactions. The investment insurance contract is valued based on contributions to the unallocated fund and credited with interest at the stated rate; and is reduced by withdrawals. The limited partnership is valued based on the Plan s interest in the capital of the partnership which consists of the Plan s cumulative contributed capital and cumulative net earnings/losses of the partnership. The fair value of the Plan s interest in the Master Trust is based on the beginning of year value of the Plan s interest in the trust plus actual contributions and allocated investment income or losses less actual distributions and allocated administrative expenses. Purchases and sales of investments are recorded on a trade date basis. Interest income is accrued based on the terms of the underlying investments and dividend income is recorded on the ex-dividend date. Net investment income includes the Plan s gains and losses on investments purchased and sold as well as held during the year. Benefits and Expenses Benefit payments to participants are recorded upon distribution. All benefit payments and eligible administrative expenses are paid from Plan assets. Administrative and other expenses of the Plan consist of legal, actuarial, auditing, recordkeeping, and custodial fees. Costs paid directly by the Employers are not recorded in the Statements of Changes in Net Assets Available for Benefits. Recently Issued or Adopted Accounting Pronouncements We have assessed the potential impact of accounting standards that have been issued, and have determined the following standard to be applicable: In February 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) , Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), 7

9 Health and Welfare Benefit Plans (Topic 965). The ASU removes the requirement to disclose the percentage interest in the master trust for plans with divided interest and that all plans disclose the dollar amount of their interest in each of those general types of investments. The ASU also requires all plans to disclose their master trust s other asset and liability balances and the dollar amount of the plan s interest in each of those balances. Lastly, the ASU removes the requirement that the disclosures relating to the 401 (h) account assets be provided in the health and welfare benefit plan s financial statements and instead disclose the name of the defined benefit pension plan in which those investment disclosures are provided. The ASU is effective for nonpublic entities for fiscal years beginning after December 15, 2018, with early adoption permitted. The ASU is retrospectively applied. The Plan early adopted ASU at December 31, NOTE 3: INCOME TAX STATUS The IRS has determined and informed the Plan Sponsor Committee and Trust Committee by a letter dated May 12, 2014, that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (IRC). Although the plan has been amended since receiving the determination letter, the Plan administrator and the Plan's tax counsel believe that the Plan is designed, and is currently being operated, in compliance with the applicable requirements of the IRC and, therefore, believe that the Plan is qualified, and the related trust is tax-exempt. GAAP requires the Trust Committee to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. We had no uncertain income tax positions at December 31, 2017, or The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. NOTE 4: INVESTMENTS Interest in Master Trust The Plan s investments are in a master trust which holds the investment assets of the Plan, The Eleventh Farm Credit District Employees Retirement Plan, Northwest Farm Credit Services Retirement Plan, and Ninth Farm Credit District Pension Plan. Each plan s share of the Master Trust is determined by the use of accumulation units, with each unit representing an undivided interest in the Master Trust. The plans are credited with units purchased and charged with units to be paid or forfeited at the monthly accumulation unit value. Net assets, net investment income and losses, gains and losses, and administrative expenses are allocated to the participating plans based upon the weighted average units held during the period. The Plan s interest in the Master Trust was approximately 68% at December 31, 2017, and The following tables present the fair values of assets in the Master Trust and the Plan s interest in the Master Trust: The Plan's interest As of December 31, 2017 Master Trust in the Master Trust Money market $ 75,305,087 $ 52,396,500 Commingled trust funds 1,228,095, ,376,226 Investment insurance contract 5,592,593 5,592,593 Cayman Islands exempted company 147,782, ,573,986 Limited partnership 2,515,319 1,785,065 Pending investment trade 40,000,000 29,000,000 Total assets held by Master Trust $ 1,499,291,410 $ 1,015,724,370 The Plan's interest As of December 31, 2016 Master Trust in the Master Trust Money market $ 84,115,264 $ 57,906,853 Commingled trust funds 1,078,460, ,476,711 Investment insurance contract 5,917,258 5,917,258 Cayman Islands exempted company 142,833,989 99,139,166 Total assets held by Master Trust $ 1,311,327,208 $ 893,439,988 8

10 Master Trust investment income for the years ended December 31 is as follows: Commingled trust funds $ 195,322,806 $ 91,843,024 Cayman Islands exempted company 4,948,691 2,607,881 Limited partnership 777,042 - Total investments held by Master Trust 201,048,539 94,450,905 Interest and dividends 445, ,477 Total investment income $ 201,493,721 $ 94,650,382 Unallocated Insurance Contract In May 1974, the Plan entered into a guaranteed interest group annuity contract (annuity contract) with Lincoln National Life Insurance Company (Lincoln National). Lincoln National maintains the contributions to the annuity contract in an unallocated fund to which it adds interest at the stated interest rate. Such stated rate resets annually. The interest rate earned was 1.85% during 2017 and NOTE 5: ACCUMULATED PLAN BENEFITS Accumulated plan benefits are those future periodic payments, including lump-sum distributions, which are attributable under the Plan s provisions to the service employees have rendered. Accumulated plan benefits include benefits expected to be paid to retired or terminated employees or their beneficiaries, beneficiaries of employees who have died, and present employees or their beneficiaries. The actuarial present value of accumulated plan benefits is determined by the Plan s actuary by applying actuarial assumptions to adjust the accumulated plan benefits to reflect the time value of money and the probability of payment between the valuation date and the expected date of payment. The significant assumptions used in the valuations as of December 31, are detailed below: Mortality RP-2014 Aggregate Table projected back to 2006 using Scale MP-2014 and projected forward using Scale MP-2017 with generational projection Interest rate 6.75% per annum 6.75% per annum RP-2014 Aggregate Table projected back to 2006 using Scale MP-2014 and projected forward using Scale MP-2016 with generational projection Compensation increases 5.25% per annum 5.25% per annum Lump sum interest rate Segment rate of 3.0%, 4.0%, and 5.0% per annum and the current 417e lump sum mortality table for the 50% option, 8.0% per annum and the RP-2000 Combined Healthy table weighted 70% male and 30% female for 100% lump sum option Segment rate of 3.0%, 4.0%, and 5.0% per annum and the current 417e lump sum mortality table for the 50% option, 8.0% per annum and the RP-2000 Combined Healthy table weighted 70% male and 30% female for 100% lump sum option The foregoing actuarial assumptions are based on the presumption that the Plan will continue. Were the Plan to terminate, different actuarial assumptions and other factors might be applicable in determining the actuarial present value of accumulated plan benefits. The actuarial present value of accumulated plan benefits at December 31 is summarized as follows: Actuarial present value of accumulated plan benefits Vested benefits Participants and beneficiaries currently receiving payments $ 399,033,992 $ 345,630,823 Other participants 484,547, ,041,398 Total vested benefits 883,581, ,672,221 Nonvested benefits 5,182,423 5,782,394 Actuarial present value of accumulated plan benefits $ 888,763,766 $ 874,454,615 9

11 Vested benefits reflect benefits based on current credited service. Nonvested benefits reflect benefits based on future events. The changes in actuarial present value of accumulated plan benefits for the years ended December 31 are summarized as follows: Actuarial present value of accumulated plan benefits, beginning of year $ 874,454,615 $ 803,338,599 Increase (decrease) during the year attributable to: Benefits accumulated and experience changes 60,384,053 37,043,551 Interest 57,652,240 58,305,715 Plan amendments 306,722 (1,360,337) Changes in actuarial assumptions (311,980) 33,572,227 Benefits paid (103,721,884) (56,445,140) Net increase 14,309,151 71,116,016 Actuarial present value of accumulated plan benefits, end of year $ 888,763,766 $ 874,454,615 Changes in actuarial assumptions decreased accumulated plan benefits in 2017 and increased accumulated plan benefits in 2016 primarily due to changes to the mortality table and interest rate. NOTE 6: RISKS AND UNCERTAINTIES The Plan provides for investment in a variety of investment funds. In general, investments are exposed to various risks, such as interest rate, credit, and overall market volatility risk. Due to the level of risk associated with certain investments, it is at least reasonably possible that changes in the values of the investments will occur in the near term and that such changes could materially affect the amounts reported in the Statements of Net Assets Available for Benefits. Plan contributions and the actuarial present value of accumulated plan benefits are calculated based on certain assumptions pertaining to interest rates, inflation rates, long-term return on investments, and mortality, all of which are subject to change. Due to uncertainties inherent in the estimation process, it is at least reasonably possible that changes in these estimates in the near term would be material to the financial statements. NOTE 7: RELATED PARTY Farm Credit Foundations paid certain expenses on behalf of the Plan and was reimbursed by the participating employers for those expenses. NOTE 8: FAIR VALUE OF FINANCIAL INSTRUMENTS The Plan uses fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. For additional information on how the Plan measures fair value, refer to Note 2. In addition to assets held in the Master Trust, the Plan also held short-term investments of $3,157,677 and $2,733,209 at December 31, 2017, and 2016, respectively. The fair value measurements of these short-term investments were determined using Level 1 inputs and are measured on a recurring basis. 10

12 The following table presents the fair value hierarchy for the balances of the assets of the Master Trust measured at fair value on a recurring basis as of December 31: 2017 Level 1 Level 2 Level 3 Total Money market $ 75,305,087 $ - $ - $ 75,305,087 Commingled trust funds - 1,154,783,346-1,154,783,346 Investment insurance contract - 5,592,593-5,592,593 Limited partnership - - 2,515,319 2,515,319 Pending investment trade 40,000, ,000,000 Total assets in the fair value heirarchy $ 115,305,087 $ 1,160,375,939 $ 2,515,319 $ 1,278,196,345 Investments measured at net asset value 221,095,065 Total assets at fair value $ 1,499,291, Level 1 Level 2 Level 3 Total Money market $ 84,115,264 $ - $ - $ 84,115,264 Commingled trust funds - 1,009,399,421-1,009,399,421 Investment insurance contract - 5,917,258-5,917,258 Total assets in the fair value heirarchy $ 84,115,264 $ 1,015,316,679 $ - $ 1,099,431,943 Investments measured at net asset value 211,895,265 Total assets at fair value $ 1,311,327,208 There were no significant transfers into or out of Level 1 or Level 2 during the Plan years ended December 31, 2017, or The following table presents changes in Master Trust assets measured at fair value using Level 3 inputs on a recurring basis for the year ended December 31, 2017: Limited Partnership Beginning Balance, January 1, 2017 $ - Actual return on Plan assets: Still held at the reporting date 777,042 Purchases 1,738,277 Ending Balance, December $ 2,515,319 At December 31, 2017, the unfunded commitment to the Limited Partnership was $13,761,723 at the Master Trust level and $9,766,383 at the Plan level. The following table sets forth additional disclosures of the Master Trust for the fair value measurement of investments in certain entities that calculate NAV per share (or its equivalent as a practical expedient) as of December 31: Redemption Redemption Investment Type Fair Value Frequency Notice Period 2017 Commingled trust funds - Real estate fund - US $ 73,312,385 Quarterly 45 days Cayman Islands exempted company 147,782,680 Monthly-Annually Days 2016 Commingled trust funds - Real estate fund - US $ 69,061,276 Quarterly 45 days Cayman Islands exempted company 142,833,989 Monthly-Annually Days 11

13 There were no investments that calculate NAV per share in the Master Trust with unfunded commitments at December 31, 2017, or Events that may restrict the ability to transact with funds that calculate NAV per share were not considered probable as of December 31, 2017, or Objectives The commingled trust fund real estate fund - US owns and seeks improved real estate projects, such as office, retail, residential, and industrial investments with stabilized occupancies that produce a relatively high level of current income combined with moderate appreciation potential. The Cayman Islands exempted company investment held at December 31, 2017, and 2016 has an objective to generate consistent long-term capital appreciation with diversification of risk through the use of a multi-manager, multistrategy global investment approach. NOTE 9: SUBSEQUENT EVENTS The Plan has evaluated subsequent events through August 30, 2018, the date the financial statements were available to be issued. There have been no material subsequent events that would require recognition in these financial statements or disclosure in the Notes to Financial Statements. 12