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Comprehensive annual financial report (Volume 2003) online

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Additions:

Contributions
Investment Income (Loss)


ar3

30


i Net Assets - Defined Con

, 2003 - and comparative totals for June 30,

PERS-DCRP 457-PLAN
2003 2002 2003 2002


tribution

2002

TOTAL


Plans

2002


Total %
Change


2003




16,551
551


3


15,026
8,541


13,583

-4,434


31,577
9,092


13,583
-4,431


132.5%
305.2%
344.4%

-1.6%
12.0%
-2.1%

-100.0%
-4.6%

746.9%


Total Additions

Deductions:

Refunds

Administrative Expenses
Miscellaneous Expenses
Prior Period Adjustment




17,102

629
552

14


3

445


23,567

10,648
218
780


9,149

\

1 1 ,460
242
811
496


40,669

11,277
770
794


9,152

1 1 ,460
687
811
496


Total Deductions
lncr/(Decr) in net assets




1,195


445


1 1 ,646


13,009


12,841


13,454




15,907


-442


11,921


-3,860


27,828


-4,302



and earnings on investments fund the benefits
of the plan.

The PERB has received a long-term Intercap
loan through the Montana Department of Ad-
ministration with the BOI to fund the plan
start-up and implementation costs. As of June
30, 2003, the loan balance is $1.5 million.
The term of the loan is ten years with interest
payments beginning August 15, 2000, and
principal payments beginning August 15,
2003.



The plan net assets held in trust for benefits at
June 30, 2003 amounted to $14.8 million, an
increase of $15.9 million from net assets at
June 30, 2002.

Additions to the Defined Contribution Retire-
ment Plan net assets held in trust for benefits
include contributions and investment income.
For fiscal year 2003, contributions were
$16.6 million. This was the first year of the
plan for contributions. The plan recognized
net investment income of $551 thousand for
fiscal year 2003.



Montana PERB 's Comprehensive Annual Financial Report



29



FINANCIAL SECTION



Management^d S)idcuaaion and Gnafy^ia (cant)



Deductions from the Defined Contribution
Retirement Plan net assets mainly include
member refunds, miscellaneous expenses and
administrative expenses. For fiscal year 2003,
refunds amounted to $629 thousand. For fis-
cal year 2003, the costs of administering the
plan amounted to $552 thousand, an increase
of $107 thousand (24.0 percent) from fiscal
year 2002. The increase in administrative
costs was mainly due to start up costs of get-
ting the plan initiated and running properly in
its first year of operation.



beneficiary refunds, miscellaneous expenses
and administrative expenses. For fiscal year
2003, refunds amounted to $10.6 million, a
decrease of $812 thousand (7.0 percent) un-
der fiscal year 2002.



Deferred Compensation (457) Plan
TJie Deferred Compensation Plan is estab-
lished under Section 457 of the Internal Reve-
nue Code. This plan provides supplemental
retirement benefits for plan participants. The
Deferred Compensation Plan is funded by-
contributions and by investment earnings.
The plan net assets held in trust for benefits at
June 30, 2003 amounted to $208.5 million, an
increase of $11.9 million (6.0 percent) from
net assets at June 30, 2002.

Additions to the Deferred Compensation Plan
net assets held in trust for benefits include
contributions and investment income. For fis-
cal year 2003, contributions increased from
those of fiscal year 2002 from $13.6 million
to $15.0 million, an increase of $1.4 million
(10.6 percent). Contributions increased be-
cause of increased contributions by current
participants. The plan recognized net invest-
ment income of $8.5 million for tlscal year
2003 compared with a net investment loss of
$4.4 million for fiscal year 2002. The in-
crease in investment income is mainly due to
the turnaround in the equity market.

Deductions from the Deferred Compensation
Plan net assets mainly include member and



30



Montana PERB 's Comprehensive Annual Financial Report



FINANCIAL SECTION



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Montana PERB 's Comprehensive Annual Financial Report 31



FINANCIAL SECTION



Public Employees' Retirement Board

A Component Unit of the State of Montana

Statement of Fiduciary Net Assets - Pension Trust Funds

as of June 30, 2003 - with comparative totals tor June 30, 2002



PERS-DBRP



MPORS



GWPORS



SRS



JRS



HPORS



Assets

Cash and Short-term Investments
Securities Lending Collateral (Note A3)



80,051,069
90,288,753



1,551,066
4,579,494



1,877,272
1,314,401



3,298,255
4,462,375



889,422 1,610,613



Receivables
Interest

Accounts Receivable
Due from Other Funds
Due from Primary Government
Notes Receivable



11,388,163

4,229,597

215,048

45,959

380,315



503,611
378,391

6,798,457



148,074
5,015



499,239

288,204

25,891

71,426



161,294 286,802

3

63,092



Total Receivables



16,259,082 7,680,459



153,089 884,760



161,294 349,897



Investments, at fair value (Note A3)

Montana Domestic Equity Pool (MDEP)
Montana Stock Pool (MTCP)
Retirement Fund Bond Pool (RFBP)
Montana International Pool (MTIP)
Montana Private Equity Pool (MPEP)
Equity Index Fund
Real Estate Investments
Mortgages & Commercial Loans

net of Accumulated Mortgage Discount
Defined Contributions Fixed Investments
Defined Contributions Variable Investments
Deferred Compensation Life Insurance



1,308,883,763 59,429,624 17,475,616 59,058,472 19,161,851 34,191,470



804,470,236 43,872,923
225,346,965 10,832,775
150,960,074 6,975,233

17
7,246,333

112,078,541



12,920,683 43,639,134
2,996,381 10,249,759

2,058,250 6,906,435



14,045.793 25,177.487
3,294,445 5,883,354

2,242,927 3,932,967



Total Investments


2,608.985,929


121.110,555


35,450,930


119,853,800


38,745,016


69,185.278


Property and Equipment, at cost,

net of Accumulated Depreciation (Note A2)


1,898












Total Assets


2,795,586,731


134,921,574


38,795,692


128,499,190


41,232,334


73,715,906



Liabilities

Securities Lending Collateral Liability

Accounts Payable

Due to Other Funds

Due to Primary Government

Notes Payable (Note C)

Deferred Revenue

Compensated Absences



90,288.753


4.579,494


1,314,401


4,462,375


2,890,264


51,575


19,639


8,995


5,512,947


63,978


24,740


32,065


49,577








243,323


1,111


8,279


605


239,552


265







1,436,602 2,570.118



3,255



15,300



Total Liabilities 99,224,416 4,696,423


1 ,367,059


4,504,040


1,439,857


2,585,418


Net Assets Held in Trust for Pension Benefits

(see schedule of funding progress page 701 $ 2.696.362.315 130,225,151


37,428,633


123,995,150


39,792,477


71,130,488


The notes to the financial statements are an integral part of this statement.



32



Montana PERB 's Comprehensive Annual Financial Report



FINANCIAL SECTION



FURS



Defined Benefit Pension Plans



Total Defined
Benefit
VFCA Pension Plans



Defined Contribution Plans



PERS-DCRP 457 Plan



Total Defined

Contribution

Plans



Total Pension
Trust Funds



Total Pension
Trust Funds



2003



2002



1,733,591 1,415,234 92,426,522

4,345,996 606.471 109,604,210



1,745,349 2,881,563



4,626,912



97,053,434
109,604,210



81,122,882
154,849,079



476,963
335,462

6,006,253



68,860



13,533,006




5,236,672


170


240,939


5,500,000


12,913,761


95


451,741





597,601



69



597,771

5,500,000

164



13,533,006
5,834,443
5,740,939

12,913,925
451,741



14,759,651
6,195,874

826,725
12,383,977

496,973



6,818,678



68,860



32,376,119



5,500,265 597,670



6,097,935



38,474,054



34,663.200



56,637,464 8,134,128 1,562,972,388



41,756,860 5,964,322

10,235,341 1,378,791

6,545,922 968,788



991,847,438

270,217,811

180,590,596

17

7,246,333



1,562,972,388

991,847,438

270,217,811

180,590,596

17

7,246,333



1,128,570,044

1,056,625,247

256,625,483

113,753,416

230,050,585

7,035,303



112,078,541



407,489 137,687,286
8,831,476 67,328,712
12,316



112,078,541 178,441,866

138,094,775 138,094,775 122,729,210

76,160,188 76,160,188 71,459,943

12,316 12,316 12,316



115,175,587


16,446,029


3,124,953,124


9,238,965


205,028,314


214,267,279


3,339,220,403


3,165,303.413






1,898






;


1,898


2,359


128,073,852


18,536,594


3,359,361,873


16,484,579


208,507,547


224,992,126


3,584,353,999


3,435,940,933



4,345,996



30,274



1,021



606,471



30,274



109,604,210








109,604,210


154,849.079


2,970,473


33,309


129,174


162,483


3,132,956


14,506.249


5,712,833


19,675


8,431


28,106


5,740,939


314.108


49,577


6,609


6,868


13,477


63,054


141,057




1,498,000




1,498,000


1,498,000


1.498.000


254,339








254,339


20.047


239,817


46,568


22,035


68,603


308,420


261,093



4,377,291



636,745



118,831,249



1,604,161



166,508



1,770,669 120,601,918 171,589,633



123,696,561 17,899,849



3,240,530,624



14,880,418 208,341,039



223,221,457 3,463,752,081 3,264,351,300



Montana PERB 's Comprehensive Annual Financial Report



33



FINANCIAL SECTION



Public Employees' Retirement Board

A Component Unit of the State of Montana

Statement of Changes in Fiduciary Net Assets- Pension Trust Funds

for the year ended June 30, 2003 - with comparative totals for June 30, 2002



PERS-DBRP



MPORS



GWPORS



SRS



JRS



HPORS



Additions














Contributions (Note D)














Employer


$ 57,225,013


3,502,000


1,835,140


2,475,394


1,052,361


2,866,015


Plan Member


61,749,963


2,234,667


2.288,765


2,646,794


285,413


797,344


Membership Fees


161












Interest Reserve Buyback


878,256


18,638


4,283


21,898




7,699


Retirement Incentive Program


371,473






33,000






Registration Fee Collections












353,589


Miscellaneous Revenue


860












State Contributions


388,954


6,798,457










Nonvested Member Forfeitures














Total Contributions


120,614,680


12,553,762


4,128,188


5,177,086


1,337,774


4,024,647


Investment Income (Note A3)














Net Appreciation (Depreciation)














in Fair Value of Investments


53,192,946


3,316,246


1,179,075


2,957,927


897,078


1,251,729


Interest


102,179,450


4,655,351


1,202,724


4,654,519


1,585,672


3,038,556


Dividends


15,050,658


689,895


196,044


680,025


219,132


395,063


Securities Gain (Loss)














Securities Lending Income


1,628,745


83,359


23,371


81,582


26,217


47,361



172,051,799



8,744,851



2,601,214



8,374,053



4,732,709



Less:



Investment Expense

Secunties Lending Rebate and Fees


3,402,205
1,318,407


146,988
68,067


41,394
19,149


143,070
66,795


45,872
21,484


82.494
38,801




4,720,612


215,055


60,543


209,865


67,356


121,295


Net Investment income


167,331,187


8,529,796


2,540,671


8,164,188


2,660,743


4,611,414


Total Additions


287,945,867


21,083,558


6,668,859


13,341,274


3,998,517


8,636,061



Deductions (Note D)














Benefits


122,203,686


10,425,561


1,316,309


4,307,060


1,551,557


5,159.762


Refunds to Members


10,218,257


325,966


354,807


456,666




60.244


Refunds to Other Plans


228,340


46,750




18,211




47,496


Transfers to DCRP


15.990.427












Transfers to ORP


5,957,197












Supplemental Insurance Payments














Administrative Expenses


2,253,814


40,160


24,740


32.065


3,255


15,300


Miscellaneous Expenses















Total Deductions



156,851,721



10,838,437



1.695,856



1,554,812 5,282,802



Wef Increase (Decrease)
Net Assets Held in Trust for Pension Benefits



131.094,146



10.245,121



4,973,003



8,527,272



2,443,705 3,353,259



Beginning of Year 2,565,268,169 119,980,030


32,455,630


115,467,878


37,348,772


67,777,229


Prior Period Adjustment


End of Year $ 2,696,362,315 130,225,151


37,428,633


123,995,150


39,792,477


71,130,488


Tfie notes to the financial statements are an integral part of this statement.



34



Montana PERB 's Comprehensive Annual Financial Report



FINANCIAL SECTION



Defined Benefit Pension Plans



FURS



Total Defined
Benefit
VFCA Pension Plans



PERS-DCRP



Defined Contribution Plans



Total Defined
Contribution
457 Plan Plans



Total Pension Total Pension
Trust Funds Trust Funds



2003



2002



2,802,156




71,758,079


6,129,909


44,218


6,174.127


77,932,206


69,985,124


2,138,781




72,141,727
161


10,389,320


14,725,241


25,114,561


97,256,288
161


82,542,491
167


2,221




932,995
404,473
353,589








932,995
404,473
353,589


163,778
188,962
308.973






860


661


256,406


257,067


257,927


223.389


6,006,253


1,310,088


14,503,752


31,188




31,188


14,503,752
31,188


13.800.938


10,949,411


1,310,088


160,095,636


16,551,078


15.025,865


31,576,943


191,672,579


167.213.822



3.135.586

4.397,325

657,600

79,321



564,887 66,495,474

617,831 122,331,428

94,048 17,982,465



11,545



1,981,501



439,327 1,711,971
111,535 7,227,214



2,151,298 68,646,772 (382,360,053)

7,338,749 129,670,177 123,858.273

17,982,465 16,992.833

676,639

1,981,501 4,385,196



1,288,311



208,790,868



550,862



8.939,185



9.490,047 218,280,915 (236,447,112)



139,066
64,791



20,303

9,457



4,021,392
1,606,951



398,329



398,329



4,419,721
1,606,951



4.575.809
3,781.868



203.857


29.760


5,628,343




398,329


398,329


6,026,672


8,357,677


8.065.975


1,258.551


203,162,525


550,862


8,540,856


9,091,718


212,254,243


(244,804.789)


19.015.386


2,568,639


363,258,161


17,101,940


23,566,721


40,668,661


403,926,822


(77.590.967)



9.080.598


1,411,936


155,456,469


82,765




11,498,705

340,797

15,990,427

5,957,197




12,000


12,000


30,274


30,274


2,429,882



628,884 10.648.173



551,734
14,156



217.825
779.792



11,277,057



769,559
793,948



155,456,469

22,775,762

340,797

15,990,427

5,957,197

12,000

3,199,441

793,948



145.783.245

23.424.213

438.608



12,675

4.218.397

810,882



12,840.564 204,526,041 174.688.020



9,821,749



1,114,429 171,572,684



15,907,166



11,920,931



27,828,097



199,400,781 (252,278.987)



113,874,812


16,785,420


3,068,957,940


(1,026,748)


196,420,108


195,393,360


3,264,351,300


3,517,126,394


(496.107)


123,696,561


17,899,849


3,240,530,624


14,880,418


208,341,039


223,221,457


3,463,752,081


3,264,351,300





Montana PERB 's Comprehensive Annual Financial Report



35



FINANCIAL SECTION



Public Employees' Retirement Board

A Component Unit of the State of Montana

Notes to the Financial Statements

for the Fiscal Years Ended June 30, 2003 and 2002



Xhe Public Employees' Retirement Board
(PERB) administers ten retirement plans and
the related member education plans. The re-
tirement plans are eight defined benefit plans
and two defined contribution plans. The de-
fined benefit retirement plans are the Public
Employees' Retirement System (PERS-
DBRP), Municipal Police Officers' Retire-
ment System (MPORS), Game Wardens' and
Peace Officers' Retirement System
(GWPORS), Sheriffs' Retirement System
(SRS), Judges' Retirement System (JRS),
Highway Patrol Officers' Retirement System
(HPORS), Firefighters' Unified Retirement
System (FURS), and the Volunteer Firefight-
ers' Compensation Act (VFCA). The defined
contribution retirement plans are the Public
Employees' Retirement System (PERS-
DCRP) and the Deferred Compensation (IRC
¬І 457) Plan. The PERS-DCRP was imple-
mented as of July 1, 2002. Eligible active
members of the PERS, as of this date, could
elect to join this plan and for those members
the window closed June 30, 2003. All new
hires to the PERS after July 1, 2002 have a
twelve-month window from their date of hire
to file an election. The Deferred Compensa-
tion Plan is available to employees of the
state, university and local subdivisions that
contract with the plan.

PERS members are provided member educa-
tion as a tool to help them decide between
participation in the Defined Benefit Retire-
ment Plan (PERS-DBRP) or the Defined
Contribution Retirement Plan (PERS-DCRP).
If members are employees of the university
system they have a third choice, the Optional



Retirement Program (ORP). The plan choice
is a one-time irrevocable election. Education
is also available for the members who choose
the PERS-DCRP. This education includes in-
formation on investment choices. A defined
contribution education fund was established
as of July 1, 2002 to fund this education.

The assets of each plan are maintained sepa-
rately, including member education funds,
and may be used only for the payment of
benefits to the members of the appropriate
plan and to pay administrative expenses of
the appropriate plan, in accordance with the
terms of each plan as prescribed in Title 19,
of the Montana Code Annotated (MCA). The
financial statements are presented by combin-
ing the PERS-DBRP and the DBRP Educa-
tion fund and by combining the PERS-DCRP,
the DCRP Education Fund and the Disability
Fund. A presentation of each individual fund
is shown at the end of the financial section.

A. Summary of Significant Account-
ing Policies

1. Basis OF Accounting

The PERB is a discretely presented com-
ponent unit Pension Trust Fund of the
State of Montana financial reporting en-
tity. The Montana Public Employee Re-
tirement Administration (MPERA), staff
of the PERB, prepares the accounting re-
cords and financial statements for the fi-
duciary/pension trust funds using the ac-
crual basis of accounting. For the pension
trust funds, member contributions are rec-
ognized in the period in which contribu-



36



Montana PERB 's Comprehensive Annual Financial Report



FINANCIAL SECTION



tions are due. Employer contributions are
recognized when due and the employer
has made a formal commitment to pro-
vide the contributions. Revenues are rec-
ognized in the accounting period in which
they are earned and become measurable.
Benefits and refunds are recognized in the
accounting period in which they are due
and payable. Expenses are recognized in
the period incurred. Administrative ex-
penses are financed through investment
earnings on the pension trust fund in each
plan. Interfund receivables and payables
exist at year-end because all defined
benefit administrative expenses are ac-
counted for within PERS-DBRP and then
allocated to the other defined benefit
plans at year-end. Receivables and pay-
ables were also recorded this year for the
transfer of participant accounts from the
PERS-DBRP to the PERS-DCRP and
ORP in the amounts of $5.5 million and
$2 million, respectively. Elections re-
ceived at the end of June 2003 were valid
for fiscal year 2003 but because of re-
quirements of processing an election
form, the account balances could not be
transferred until July 2003. MPERA pre-
sented these receivables and payables be-
cause this is a major point of interest this
fiscal year with the start up of the PERS-
DCRP, and because this will give the fi-
nancial statement user a more accurate
picture of the DC plan financial status and
its impact. Participants of the deferred
compensation (457) plan are charged fees
based on individual account balances.
The vendor withholds fees and after pay-
ment of the vendor's contractual ex-
penses, the excess fees are submitted to
the PERB. The excess fees, recorded as
Miscellaneous Revenue in the financial
statements, are used to pay the Board's
deferred compensation related administra-
tive expenses.



2. Property and Equipment Used in
Operations

Equipment, valued at $5,000 or more, is
recorded at cost less straight-line depre-
ciation over the estimated useful life of
five to ten years. Equipment under $5,000
is expensed in the year purchased.

3. Method Used to Value
Investments

Defined benefit retirement plan assets are
invested on behalf of the plans by the
Montana Board of Investments (BOI),
Department of Commerce. Investments
are purchased in accordance with the
statutorily and constitutionally mandated
"prudent expert principle." Investments
are reported at fair value. As of June 30,
2003, there were five major diversified
pools, the same number as in fiscal year
2002, Montana Short Tenn Investment
Pool (STIP), Retirement Funds Bond
Pool (RFBP), Montana International Pool
(MTIP), Montana Private Equity Pool
(MPEP) and the Montana Domestic Eq-
uity Pool (MDEP). The Montana Stock
Pool (MTCP) was closed in fiscal year
2003 and the MDEP became effective
May 1, 2003. It is similar to other pools
currently managed by the BOI. The
MDEP affords investors a more diversi-
fied exposure to the U.S. equity market
by including small and mid-cap compa-
nies and reduces volatility by incorporat-
ing an index component to the domestic
equity portfolio. Participants in MTCP
were automatically transferred into the
new pool.

The PERS-DCRP and the deferred com-
pensation plan's fixed assets were in-
vested and managed on behalf of the plan
by Pacific Investment Management Com-
pany (PIMCOyState Street Kansas City



Montana PERB 's Comprehensive Annual Financial Report



37



FINANCIAL SECTION



(SSKC). The third party record keeper.
Great West Life & Annuity Insurance
Co., tracks and reports the daily trading
and valuations of all investment options
including the assets held by the individual
mutual fund companies. Investments are
reported at fair value as of June 30, 2003.

The following are the PERB summaries
of the BOI's fiscal year end statements,
the PIMCO/SSKC contract and a state-
ment about the variable investments.

STIP portfolio may include asset-backed
securities, commercial paper, corporate
and government securities, repurchase
agreements and variable-rate (tloating-
rate) instruments. These securities pro-
vide a diversified portfolio earning a
competitive total rate of return. Funds
may be invested for relatively short peri-
ods. State agencies are legally required to
invest in STIP and the PERB elects to
have all STIP income automatically rein-
vested. Investments are reported at fair
value based on market prices supplied to
the BOI by various pricing services. The
unit value is fixed at $1.00. A purchased
unit earns income on the purchase date
and ceases to earn income on the day be-
fore the unit is sold. STIP income reflects
the monthly earnings of the STIP portfo-
lio and is distributed on the first calendar
day of the month, with the exception of
the June distribution. Income for June is
distributed on the last calendar day of the
month. Administrative expenses incurred
by the BOI are charged daily to STIP
based on their expenses applicable to
STIP. STIP investments are required to
have the highest rating in the short term
category by any Nationally Recognized
Statistical Rating Organization. STIP is
considered an external investment pool
per the Governmental Accounting Stan-



dards Board (GASB) Statement No. 31
and is classified as a "2a7-like" pool.
STIP is not registered with the Securities
and Exchange Commission (SEC) but
does operate in a manner consistent with
SEC rules. Disclosure about Derivatives:
STIP holds two types of securities that are
required to be disclosed per the GASB: 1)
Asset-backed securities are collateralized
by a pool of mortgage and non-mortgage
assets pledged by the issuer. 2) Variable-
rate (floating-rate) securities are sensitive
to interest rate changes. There are no le-
gal risks that the BOI is aware of regard-
ing any STIP investments.

MDEP portfolio may include common
stock, equity index, preferred stock, con-
vertible equity securities and equity de-
rivatives. The MDEP was established in
April 2003. Effective May 1, 2003, the
Public Employees', Municipal Police Of-
ficers', Game Wardens' and Peace Offi-
cers', Sheriffs', Judges', Highway Patrol
Officers', Volunteer Firefighters' and
Firefighters' Unified retirement funds
transferred all the Barclays Global Inves-
tors (BGI) S&P 500 Equity Index Fund A
and the Dimensional Fund Advisors
(DFA) U.S. Small Cap Trust investments
totaling $740 million, at cost, from the


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