DART Employees’ Defined Benefit Retirement Plan and Trust · General – The Plan is a...

DART Employees’ Defined Benefit Retirement Plan and Trust Financial Statements as of and for the Years Ended September 30, 2017 and 2016

DART EMPLOYEES’ DEFINED BENEFIT RETIREMENT PLAND AND TRUST FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED

SEPTEMBER 30, 2017 AND 2016

TABLE OF CONTENTS

Page

INDEPENDENT AUDITOR’S REPORT ..................................................................................................................... 1

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED):

MANAGEMENT’S DISCUSSION AND ANALYSIS .............................................................................................. 3

BASIC FINANCIAL STATEMENTS:

STATEMENTS OF FIDUCIARY NET POSITION .................................................................................................... 5 STATEMENTS OF CHANGES IN FIDUCIARY NET POSITION ........................................................................... 6 NOTES TO FINANCIAL STATEMENTS .................................................................................................................. 7

REQUIRED SUPPLEMENTARY INFORMATION (UNAUDITED):

SCHEDULE OF DART’S NET PENSION LIABILITY .......................................................................................... 18 SCHEDULE OF CHANGES IN DART’S NET PENSION LIABILITY ................................................................. 18 SCHEDULE OF DART’S CONTRIBUTIONS ........................................................................................................ 19 SCHEDULE OF INVESTMENT RETURNS ........................................................................................................... 19

NOTES TO REQUIRED SUPPLEMENTARY INFORMATION ........................................................................... 19

Crowe Horwath LLP Independent Member Crowe Horwath International

750 North Saint Paul Street, Suite 850 Dallas, Texas 75201-3236 Tel +1 214 777 5200 Fax +1 214 777 5202 www.crowehorwath.com

1

INDEPENDENT AUDITOR'S REPORT

Board of Directors Dallas Area Rapid Transit Dallas, Texas Report on the Financial Statements We have audited the accompanying financial statements of the DART Employees’ Defined Benefit Retirement Plan and Trust (the Plan), as of and for the years ended September 30, 2017 and 2016, and the related notes to the financial statements, which collectively comprise the Plan’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the plan net position of the Plan as of September 30, 2017 and 2016, and the changes in plan net position for the years then ended in accordance with accounting principles generally accepted in the United States of America.

2

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Required Supplementary Information as identified in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Crowe Horwath LLP

Dallas, Texas April 9, 2018

DART EMPLOYEES’ DEFINED BENEFIT RETIREMENT PLAN AND TRUST MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) SEPTEMBER 30, 2017 and 2016 (In Thousands)

3

As management of Dallas Area Rapid Transit (DART), we offer readers of the DART Employees’ Defined Benefit Retirement Plan and Trust (the “Plan”) financial statements this narrative overview and analysis of the financial activities of the Plan for the fiscal years ended September 30, 2017 and 2016. FINANCIAL HIGHLIGHTS

Net Position of the Plan was $180,355 as of September 30, 2017 compared to $168,334 as of September 30, 2016.

The Plan’s total Net Position increased by $12,021 from 2016 to 2017 compared to an increase of $13,866 from 2015 to 2016.

Benefit payments and administrative expenses increased by $2,150 from 2016 to 2017 compared to a decrease of $167 from 2015 to 2016.

Employer and employee contributions increased by $783 from 2016 to 2017 compared to an increase of $511 from 2015 to 2016.

The Plan’s total net investment income is $15,590 in 2017 compared to $16,068 during 2016, a decrease of $478 from 2016 to 2017 compared to an increase by $15,549 from 2015 to 2016.

OVERVIEW OF THE FINANCIAL STATEMENTS The discussion and analysis is intended to serve as an introduction to the Plan’s financial statements. The Plan’s financial statements are composed of financial statements and notes to the financial statements. Financial Statements. The financial statements are designed to provide readers with an overview of the Plan’s finances. The Statements of Fiduciary Net Position present information on all of the Plan’s assets and liabilities, with the difference between the two reported as Net Position. Over time, increases or decreases in Net Position may serve as a useful indicator of whether the financial position of the Plan is improving or weakening. The Statements of Changes in Fiduciary Net Position present information showing how the Plan’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, some items reported in this statement will only result in cash flows in future fiscal periods. Notes to the financial statements. The notes provide additional information that is essential to a full understanding of the data provided in the financial statements. FINANCIAL ANALYSIS As noted earlier, net position may serve over time as a useful indicator of the Plan’s financial position. In the case of the Plan, assets exceeded liabilities by $180,355 at September 30, 2017 and $168,334 at September 30, 2016. The Plan’s assets include cash and cash equivalents (3%), and investments (97%) as of September 30, 2017 compared to cash and cash equivalents (2%), and investments (98%) as of September 30, 2016. These assets are held in trust for pension benefits.

DART EMPLOYEES’ DEFINED BENEFIT RETIREMENT PLAN AND TRUST MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) SEPTEMBER 30, 2017 and 2016 (In Thousands)

4

The Plan’s net position increased by $12,021 from 2016 to 2017 compared to an increase of $13,866 from 2015 to 2016. The following table shows a summary of Plan Net Position.

Plan Net Position

2017 2016 2015 Total assets (cash, cash equivalents, receivables, and investments)

$181,233 $168,863 $156,088

Total liabilities (878) (529) (1,620)Net Pension Position $180,355 $168,334 $154,468

The following table shows a summary of Changes in Plan Net Position for the fiscal years ended September 30, 2017 and 2016 with comparative information for 2015. Investment income reflects the net investment gain or loss in stocks, governmental securities, and corporate bonds.

Changes in Plan Net Position

2017 2016 2015 Investment income, net $15,590 $16,068 $519 Employer and employee contributions 10,002 9,219 8,708 Total additions 25,592 25,287 9,227 Benefit payments and administrative expenses (13,571) (11,421) (11,588) Net increase (decrease) in Plan Net Position 12,021 13,866 (2,361) Beginning Net Position 168,334 154,468 156,829 Ending Net Position $180,355 $168,334 $154,468

REQUESTS FOR INFORMATION This financial report is designed to provide a general overview of the Plan’s finances. If you have questions concerning any of the information provided in this report or need additional financial information, contact the Chief Financial Officer at Dallas Area Rapid Transit, 1401 Pacific Avenue, P.O. Box 660163, Dallas, TX 75266-7220.

DART EMPLOYEES’ DEFINED BENEFIT RETIREMENT PLAN AND TRUST STATEMENTS OF FIDUCIARY NET POSITION September 30, 2017 and 2016 (In Thousands)

5

2017

2016

ASSETS

Cash and cash equivalents $4,994 $3,309

Accounts receivable, investments in-transit 76 60

Other receivables - 4

Investments at fair value (Note 3)

Equity investments 91,937 81,753

Fixed income 67,716 66,017

Real estate investments 16,510 17,720

Total investments 176,163 165,490

TOTAL ASSETS 181,233 168,863

LIABILITIES

Accounts payable, investment management, accrued benefits, and administrative fees

771 158

Accounts payable, investments in-transit 107 371

TOTAL LIABILITIES 878 529

NET POSITION RESTRICTED FOR PENSIONS $180,355 $168,334

The accompanying notes are an integral part of these statements.

DART EMPLOYEES’ DEFINED BENEFIT RETIREMENT PLAN AND TRUST STATEMENTS OF CHANGES IN FIDUCIARY NET POSITION For the Years Ended September 30, 2017 and 2016 (In Thousands)

6

2017 2016

ADDITIONS:

Investment income:

Net investment gain $13,219 $13,516

Interest and dividends 3,056 3,389 Investment manager fees (685) (837)

Total investment income, net 15,590 16,068

Contributions:

Employer 10,000 9,217

Employee 2 2

Total contributions 10,002 9,219

Total additions 25,592 25,287

DEDUCTIONS:

Benefit payments 13,471 11,203

Administrative expenses 100 218

Total deductions 13,571 11,421

NET INCREASE IN NET POSITION 12,021 13,866

NET POSITION:

BEGINNING OF YEAR 168,334 154,468

END OF YEAR $180,355 $168,334

The accompanying notes are an integral part of these statements.

DART EMPLOYEES’ DEFINED BENEFIT RETIREMENT PLAN AND TRUST NOTES TO FINANCIAL STATEMENTS For the Years Ended September 30, 2017 and 2016 (In Thousands)

7

1. DESCRIPTION OF THE PLAN

The following description of the DART Employees' Defined Benefit Retirement Plan and Trust (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan Document for more detailed information.

General – The Plan is a single-employer defined benefit pension plan that was designed to provide retirement, death, and disability benefits to certain employees of Dallas Area Rapid Transit (“DART”). Participants of the Plan are those employees who, as of September 30, 1995, were covered under one of three predecessor plans, Dallas Transit System Retirement Plan A (“Plan A”), Dallas Transit System Retirement Plan B (“Plan B”) and Dallas Transit System Employees Retirement Plan. The three predecessor plans were amended, restated, and consolidated into this Plan, effective October 1, 1995. No new employees are eligible to participate in the Plan.

Plan Membership – At October 1, 2017, the Plan's membership consisted of 1,163 total members; 245 active employees and 768 retirees and beneficiaries collecting benefits, and 150 terminated vested participants not yet receiving benefits. At October 1, 2016, the Plan's membership consisted of 1,190 total members; 288 active employees and 747 retirees and beneficiaries collecting benefits, and 155 terminated vested participants not yet receiving benefits. Pension Benefits at Normal Retirement Date – A participant may elect normal retirement at age 60. Under normal retirement, a participant is entitled to monthly benefits equal to: 1) 2% times the number of years of credited service up to October 1, 1983; 2) plus 1.5% times the number of years of credited service after October 1, 1983 (2% for participants who are required to make contributions); 3) and the sum multiplied by the participant's final average monthly compensation.

A participant may elect early retirement at age 55 and completion of 10 years of credited service (30 years of credited service in the case of a participant who was in Plan A on September 30, 1995). Monthly income under this election will equal normal retirement benefits reduced by 5/12 of 1% for each full month by which the participant's early retirement date precedes the normal retirement date. Participants may also elect a distribution option to receive 20% of the monthly benefit as a lump-sum payment and 80% as an annuity. Disability and Death Benefits – "Disabled" or "Disability" means the participant has terminated employment due to a physical or mental condition that results in the participant being awarded disability retirement benefits by the Social Security Administration. A participant who becomes disabled after completion of ten years of credited service, or whose disability is service related, will receive benefits earned through the date of termination. If the disability is service-related, there is a minimum monthly benefit equal to 20% of final average monthly compensation. Beneficiaries of participants who die after completion of ten years of credited service or whose death is service related will receive benefits equal to 50% of the reduced amount that would have been payable to the participant based on the assumption that the participant lived until Normal Retirement Date, retired, and elected the Joint and Fractional Survivor Election. If death is service related, there is a minimum monthly benefit equal to the greater of 20% of final average monthly compensation or $250.

Contributions – Participants in Plan A on September 30, 1995, are required to contribute 3% of their base monthly salaries to the Plan. DART's contribution amount to the Plan is actuarially determined each year. The contribution amount is determined using the minimum funding standard under IRC Section 412 as it existed in 1986. The actual contributions and percentage of covered payroll for the years ended September 30, 2017, and 2016, were as follows: 2017 2016 Amount % of covered payroll Amount % of covered payroll

Contributions: DART $10,000 63.93 $9,217 48.73

Employees 2 0.01 2 0.01 Total $10,002 63.94 $9,219 48.74


8

Vesting – Participants vest after 10 years of credited service. A participant who was in Plan A on September 30, 1995 must complete 20 years of credited service and attain age 50 before termination of employment to be vested. A vested participant who terminates employment is eligible for benefits deferred to the normal retirement date based on benefits earned through date of termination or early retirement if the participant attains age 55 and 10 years of service. A participant who was in Plan A on September 30, 1995 is eligible for deferred benefits if he/she attains age 50 and had completed 20 years of service before termination of employment. Plan Administration – The Plan is administered by a Plan Committee consisting of five members: two persons appointed by the Chairman of the DART Board, two persons elected by Plan participants, and one person appointed by the President/Executive Director of DART. Investment manager fees and substantially all administrative expenses are paid by the Plan. The administrative expenses include trustee, actuary, legal, and pension consulting fees. Plan Amendment – The Employer has the right to amend the Plan to the extent that it may deem advisable, provided; that no such amendment shall impair or adversely affect the right of any Participant which has matured and no such amendment shall increase the duties or responsibilities of the Trustee without its consent given in writing. Plan Termination – While the employer has not expressed any intent to discontinue the Plan, it may do so following approval of the DART Board. In the event the Plan is terminated, participants and their beneficiaries shall be entitled to benefits accrued.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting – The accompanying financial statements are prepared on the accrual basis of accounting. Employer contributions are recognized within the fiscal year contributions are due. Benefits are recognized when due and payable according to the terms of the Plan agreement. The Northern Trust Company (‘Trustee”) has trustee responsibilities for the Plan. Investment transactions are accounted for on the trade-date basis (date the investments are purchased or sold). The specific identification method is used by the Trustee to determine the cost of investments sold. Realized and unrealized gains and losses are calculated using the revalued cost method. Investments – The Plan’s investments are stated at fair value. If available, quoted market prices are used to value investments. Shares of mutual funds are valued at the value of shares held by the Plan at year end. The fair value of the common collective trust investments and of the other investment funds is estimated by the issuer based on the fair value of the underlying investments.

Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires the Plan Administrator to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results may differ from those estimates. Risks and Uncertainties - The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect the amounts reported in the Statements of Fiduciary Net Position available for benefits. The actuarial accrued liability is calculated based on certain actuarial assumptions. Plan contributions are also calculated and made based on certain actuarial assumptions. These assumptions pertaining to interest rates, inflation rates and employee demographics are subject to change. Due to uncertainties inherent in the estimations and assumptions process, it is at least reasonably possible that changes in these estimates and assumptions in the near term would be material to the financial statements.


9

3. INVESTMENTS Investment Policy – The Plan’s policy with respect to allocation of invested assets is established and can be amended by the Plan Committee by a majority vote of its members. The Plan Committee’s adopted asset allocation as of September 30, 2017 is follows:

Target Allocation U.S. Market Equities 39% International Equity 10% U.S. Market Fixed Income 40% Real Estate 10% Cash 1%

The Plan invests in a variety of investments selected to meet the objectives of the Plan. Net investment income is credited to the individual investments based upon average monthly balances invested by each one. The assets consist of funds managed by several investment management firms. The following is a description of the investment objectives of each fund held or firm that managed or held investments during the current year per the firm’s investment management agreement or the fund’s objectives: Garcia Hamilton Intermediate Fixed Income Portfolio and CS McKee Intermediate Government / Credit Fixed

Income portfolio invest in government agency bonds, mortgage-backed bonds, and corporate bonds.

Ryan Labs Intermediate Market Enhanced Fixed Income Portfolio invests in investment-grade fixed income securities.

Earnest Partners, US Total Market Index NL Fund, and Seizert Capital Partners Large Cap Core Equity invest in domestic stocks providing current income and capital growth potential.

First Eagle Investment Management International All Cap Value Equity, Oppenheimer International Growth Fund, and Jo Hambro Funds invests primarily equity securities of companies that are located outside of the United States.

Longview Mid Cap invests in mid-cap company stocks in approximately the same proportions as the Standard

& Poor’s 400 Index. The primary objective is to provide investment results that approximate the aggregate performance of the Standard & Poor’s 400.

WHV Investments International Large Cap Equity Portfolio is comprised of primarily large capitalization international equity growth stocks that are expected to generate long-term capital appreciation.

Real Estate Separate Account (UBS) and TerraCap Partners III hold investments in a pooled real estate fund of

diversified properties.

The Vanguard REIT ETF seeks to track the performance of the MSCI US REIT Index. REITSs in the index must have a market value of at least $100 million and adequate share and trading volume to be considered liquid. The index consists of Equity REITS, which own and manage real estate properties such as retail, residential apartment, and industrial spaces. They generate income from rental and lease payments, and offer potential for growth from property appreciation. Mortgage REITS and Hybrid REITS are not included in the index.


10

The following table shows the allocation of the Plan's total investments as of September 30, 2017 and 2016, and the allocation of Changes in Net Position for the years then ended.

INVESTMENTS 2017 2016

Fixed income investments:

Fixed income separately managed accounts:

Garcia Hamilton Intermediate Fixed Income Portfolio $25,021 * $22,804 *

CS McKee Intermediate Government / Credit Fixed Income Portfolio 21,603 * 21,456 *

Ryan Labs Intermediate Market Enhanced Fixed Income Portfolio 21,092 * 21,757 *

Total fixed income investments 67,716 66,017

Equity investments: Stock common collective trust funds:

US Total Market Index NL Fund 15,445 * 11,212 *

Stock mutual funds:

Oppenheimer International Growth 5,912 5,094

First Eagle Investment Management International All Cap Value Equity 7,518 6,936

Separately managed accounts: WHV Investments International Large Cap Equity Portfolio Jo Hambro 6,013 5,431 Earnest Partners portfolio 14,925 * 14,551 * Longview Mid Cap 24,500 * 21,974 * Seizert Capital Partners Large Cap Core Equity 17,624 * 16,555 *

Total separately managed accounts 63,062 58,511 Total equity investments 91,937 81,753 Real estate investments: TerraCap Partners III 2,370 823 Real Estate Separate Account (UBS) - 16,897 * Real Estate Separate Account – Vanguard REIT ETF 14,140 * - Total real estate investments 16,510 17,720 TOTAL INVESTMENTS $176,163 $165,490

Net appreciation (depreciation) in fair value of investments:

Fixed income investments $(1,373) $1,134

Equity investments, including stock mutual funds 14,592 12,382

Net appreciation in fair value of investments 13,219 13,516

Interest and dividends 3,056 3,389

Investment manager fees (685) (837)

NET INVESTMENT INCOME $15,590 $16,068

* Represents five percent or more of the Plan’s net position

Rate of Return - The money-weighted rate of return for the Plan investments for the Plan years ended September 30, 2017 was 9.36% compared to 10.48% as of September 30, 2016. The money-weighted rate of return expressed investment performance, net of investment expense, adjusted for the changing amounts actually invested.


11

Credit Risk – Credit Risk is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. This risk is measured by the assignment of by nationally recognized rating agencies such as S&P and Moody’s. The following tables show the rating of the Plan’s investments as of September 30, 2017 and 2016.

Credit Rating as of September 30, 2017 Investment Type

Total Amount

AA+/ AAA

AA

A

< BAA

Not Rated

Fixed Income Investments: Agency $ 13,312 $ 13,312 $ - $ - $ - $ - Asset Backed Securities 1,413 1,006 - 305 102 - Corporate Bonds and Notes 25,342 375 $5,155 13,283 6,239 290 Municipal/Provincial bonds 101 - 37 64 - - Mortgage Backed Securities 1,167 139 - 348 119 561 U.S. Treasury Bonds & Notes 26,381 26,381 - - - - 67,716 41,213 5,192 14,000 6,460 851 Equity Investments 91,937 - - - - 91,937 Real Estate Funds 16,510 - - - - 16,510

Total $ 176,163 $ 41,213 $ 5,192 $14,000 $ 6,460 $109,298

Credit Rating as of September 30, 2016

Investment Type

Total Amount

AA+/ AAA

AA

A

< BAA

Not Rated

Fixed Income Investments: Agency $ 16,848 $16,848 $ - $ - $ - $ - Asset Backed Securities 798 96 181 183 338 - Cash and Cash equivalents 285 - - - - 285 Corporate Bonds and Notes 24,475 2,716 3,251 13,231 5,197 80 Mortgage Backed Securities 833 - - 323 385 125 U.S. Treasury Bonds & Notes 22,778 22,778 - - - - 66,017 42,438 3,432 13,737 5,920 490 Equity Investments 81,753 - - - - 81,753 Real Estate Funds 17,720 - - - - 17,720 Total $ 165,490 $ 42,438 $ 3,432 $ 13,737 $ 5,920 $ 99,963

On August 5, 2011, Standard and Poor, one of three nationally recognized raters of US debt and securities, downgraded the rating of long-term United States sovereign debt from AAA to AA+ for the first time since 1941 with negative outlook. The two other national raters, Moody’s and Fitch, continue to have the highest ratings, but also have the debt on their watch lists.


12

Custodial Credit Risk The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty to a transaction, the Plan will not be able to recover the value of its investment or collateral securities that are in the possession of another party. Approximately 25.16% ($45,385) of the Plan’s Net Position represent investments in external investment pools and open-ended mutual funds for 2017 compared to 24.33 ($40,962) for 2016. The existence of these investments is not evidenced by securities that exist in physical form and therefore, they are not exposed to custodial credit risk. The investments managed by Garcia Hamilton & Associates, CS McKee LP, Ryan Labs Asset Management, WHV Investment Management, Jo Hambro, Earnest Partners, Longview Mid Cap, and Seizert Capital Partners which represent approximately 72.51% ($130,778) of the total net position of the Plan for 2017 compared to approximately 73.97% ($124,528) for 2016, are registered in the name of the Plan and therefore, are not exposed to custodial credit risk. Concentration of Credit Risk Concentration of credit risk is the risk of loss attributed to the magnitude of the Plan’s investments in a single issuer. In the investment portfolios managed separately, there is no individual investment in any one issuer that represents five percent or more of the Plan's net position (see table of investments on page 10) as of September 30, 2017 or 2016. Interest Rate Risk Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Generally, longer the maturities date of an investment, the greater the sensitivity of its fair value to changes in market interest rates. At September 30, 2017, the Plan’s portfolio consists of 52.19% ($91,937) equity investments, 9.37% ($16,510) real estate funds, and 38.44% ($67,716) debt securities. At September 30, 2016, the Plan’s portfolio consists of 49.41% ($81,753) equity investments, 10.70% ($17,720) real estate funds, and 39.89% ($66,017) debt securities. Information about the sensitivity of the fair values of the Plan’s investments to market interest rate fluctuation as of September 30, 2017 and 2016, are shown as follows:

Maturity (in Months as of September 30, 2017) Investment Type

Total Amount

12 Months or less

13 to 24 Months

25 to 60 Months

More than 60 Months

Not Applicable

Fixed Income Investments: Agency $13,312 $3,135 $4,807 $1,287 $4,084 $ - Asset Backed Securities 1,413 - 100 906 407 - Corporate Bonds and Notes 25,342 1,282 2,332 10,775 10,953 - Municipal/Provincial bonds 101 - - 101 - - Mortgage Backed Securities 1,167 - - - 1,167 - U.S. Treasury Bonds & Notes 26,381 401 3,698 10,853 11,429 - 67,716 4,818 10,937 23,922 28,039 - Equity Investments 91,937 - - - - 91,937 Real Estate Funds 16,510 - - - - 16,510 Total $176,163 $4,818 $10,937 $23,922 $28,039 $108,447 Negative amounts in the tables above denote short sales investments. Short sale investments are investments in which the investor borrows a security from a broker and sells it with the understanding that it must later be bought back and returned to the broker.


13

Maturity (in Months as of September 30, 2016)

Investment Type

Total Amount

12 Months or less

13 to 24 Months

25 to 60 Months

More than 60 Months

Not Applicable

Fixed Income Investments: Agency $16,849 $2,608 $3,835 $3,815 $6,591 $ - Asset Backed Securities 798 - - 460 338 - Cash and Cash equivalents 285 285 - - - - Corporate Bonds and Notes 24,474 844 2,157 11,393 10,080 - Mortgage Backed Securities 833 - - - 833 - U.S. Treasury Bonds & Notes 22,778 2,731 1,274 9,253 9,520 - 66,017 6,468 7,266 24,921 27,362 - Equity Investments 81,753 - - - - 81,753 Real Estate Funds 17,720 - - - - 17,720 Total $165,490 $6,468 $7,266 $24,921 $27,362 $99,473

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. Approximately, 6.24% or $10,992 of the Plan’s investments for 2017, and 8.79% or $14,558 for 2016, are in foreign currency – denominated investments. The Plan’s exposure to foreign currency risk as of September 30, 2017 and 2016, are shown in U.S. Dollars in the table below.

Investment Type

Currency 2017 Fair Value

(In US Dollars) 2016 Fair Value

(In US Dollars) Equity Investments Australian Dollar $106 $710 Brazilian Real 53 121 British Pound 1,264 1,900 Canadian Dollar 714 855 Chilean Peso 60 - Chinese Renminbi 65 - Danish Krone 292 448 European Monetary Unit (Euro) 3,607 4,735 Hong Kong Dollar 386 549 Indian Rupee 171 68 Indonesian Rupiah 8 6 Israeli Shekel 15 13 Japanese Yen 2,251 2,918 Malaysian Ringgit 8 - Mexican Peso 218 136 Norwegian Krone 53 156 Polish Zloty 23 7 Russian Ruble 15 - Singapore Dollar 158 172 South African Rand 53 44 South Korean Won 226 204 Swedish Krona 235 275 Swiss Franc 848 1,082 Taiwanese Dollar 8 15 Thai Baht 140 132 Turkish Lira 15 12 Total $10,992 $14,558


14

The plan categorizes its fair value measurements within the fair value hierarchy established by GAAP. The hierarchy is based on the valuation inputs used to measure fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets. Level 2 inputs are significant other observable inputs and are valued using a matrix pricing model. Level 3 inputs are significant unobservable inputs and are valued using future projected cash flows. DART has the following fair value measurements as of September 30, 2017 and 2016.

Fair Value Measurements as of September 30, 2017 Investment Type

Total Amount

Level 1 Level 2 Level 3

Agency $ 13,312 $ - $ 13,312 $ - Asset Backed Securities 1,413 - 1,413 - Corporate Bonds and Notes 25,342 - 25,342 - Municipal/Provincial Bonds 101 - 101 - Mortgaged Backed Securities 1,167 - 1,167 - US Treasury Bonds & Notes 26,381 - 26,381 - Equity Investments 91,937 91,937 - - Real Estate Funds 16,510 14,140 - 2,370 Total $ 176,163 $ 106,077 $ 67,716 $ 2,370

Fair Value Measurements as of September 30, 2016 Investment Type

Total Amount

Level 1 Level 2 Level 3

Agency $ 16,848 $ - $ 16,848 $ - Asset Backed Securities 798 - 798 - Cash and Cash Equivalents 285 285 - - Corporate Bonds and Notes 24,475 - 24,475 - Mortgaged Backed Securities 833 - 833 - US Treasury Bonds & Notes 22,778 - 22,778 - Equity Investments 81,753 81,753 - - Real Estate Funds 17,720 - - 17,720 Total $ 165,490 $ 82,038 $ 65,732 $ 17,720


15

4. NET PENSION LIABILITY OF DART AND ACTUARIAL ASSUMPTIONS The components of the net pension liability of DART at September 30, 2017 and 2016:

2017 2016 Total pension liability $225,254 $220,462 Plan fiduciary net position (180,355) (168,334) DART’s net pension liability $44,899 $52,128 Plan fiduciary net position as a percentage of total pension liability 80.07% 76.35%

Actuarial Assumptions as of October 1, 2017 The total pension liability was determined by actuarial valuation as of October 1, 2017 using the following actuarial assumptions. Investment Return 6.75% compounded annually, net of expenses. Salary Scales 3.00% per annum. Mortality Rate Healthy Lives:

RP-2000 Combined Healthy Table (sex distinct) with rates increased by 8.59% and with fully generational mortality improvement projections using Scale AA.

Mortality Rate Disabled Lives: RP-2000 Disabled Mortality Table (sex distinct). Retirement Age Ages 55 to 70. Inflation 2.5% per annum. Actuarial Cost Method Entry Age Normal (level percent of pay)

Actuarial assumptions used in the October 1, 2017 valuation were based on the census data collected as of October 1, 2017. Best estimates of arithmetic rates of return for each major asset class included in the pension plan's target asset allocation as of September 30, 2017 are summarized in the following table (note that the rates shown below include the inflation component):

Target Allocation

Estimate of expected long-term rate of return

U.S. Market Equities 39% 4.30% U.S. Market Fixed Income 40% 0.70% International Equities 10% 5.60% Real Estate 10% 6.70% Cash 1% -0.50%

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation.


16

Discount Rate The discount rate used to measure the total pension liability was 6.75 percent. The projections of cash flows used to determine the discount rate assumed that DART contributions will continue to follow the current funding policy. Based on this assumption, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Sensitivity of the net pension liability to changes in the discount rate The following presents the net pension liability of DART calculated using the discount rate of 6.75 percent, as well as what DART net pension liability would be if it were calculated using a discount rate that is one percentage-point lower (5.75 percent) and one percentage-point higher (7.75 percent) than the current rate.

1% Decrease (5.75%)

Current Discount Rate (6.75%)

1% increase (7.75%)

DART net pension liability $67,609 $44,899 $25,289

Actuarial Assumptions as of October 1, 2016 The total pension liability was determined by actuarial valuation as of October 1, 2016 using the following actuarial assumptions. Investment Return 6.75% compounded annually, net of expenses. Salary Scales 3.00% per annum. Post-Retirement Mortality RP-2000 Combined Healthy Table (sex distinct) with rates

increased by 8.59% and with fully generational mortality improvement projections using Scale AA.

Disability rate RP-2000 Disabled Mortality Table (sex distinct). Retirement Age Ages 55 to 70. Inflation 2.5% per annum. Actuarial Cost Method Entry Age Normal (level percent of pay).

Actuarial assumptions used in the October 1, 2016 valuation were based on the census data collected as of October 1, 2016. Best estimates of arithmetic rates of return for each major asset class included in the pension plan's target asset allocation as of September 30, 2016 are summarized in the following table (note that the rates shown below include the inflation component):

Target Allocation

Estimate of expected long-term rate of return

U.S. Market Equities 39% 4.25% U.S. Market Fixed Income 40% 0.75% International Equities 10% 5.00% Real Estate 10% 4.75% Cash 1% -0.25%


17

The long-term expected rate of return on pension plan investments was determined using a building-block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. Discount Rate The discount rate used to measure the total pension liability was 6.75 percent. The projections of cash flows used to determine the discount rate assumed that DART contributions will continue to follow the current funding policy. Based on this assumption, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Sensitivity of the net pension liability to changes in the discount rate The following presents the net pension liability of DART calculated using the discount rate of 6.75 percent, as well as what DART net pension liability would be if it were calculated using a discount rate that is one percentage-point lower (5.75 percent) and one percentage-point higher (7.75 percent) than the current rate.

1% Decrease (5.75%)

Current Discount Rate (6.75%)

1% increase (7.75%)

DART net pension liability $74,908 $52,128 $32,451

5. TAX STATUS OF PLAN The Internal Revenue Service (“IRS”) issued a determination letter dated January 30, 2012, stating that the Plan was in accordance with Internal Revenue Code Sections 401 and the applicable plan design requirements as of that date. Plan management believes that the Plan was operated during the Plan year and continues to be operated in accordance with the applicable IRS regulations. The Plan is subject to routine audits by the IRS; however, there are currently no audits for any tax periods in progress. ThePlan Administrator believes it is no longer subject to income tax examinations for years prior to 2008.

6. RELATED PARTY TRANSACTIONS The Plan invests in funds managed by the Trustee. These transactions are therefore related party transactions, which are exempt from prohibited transaction rules.

DART EMPLOYEES’ DEFINED BENEFIT RETIREMENT PLAN AND TRUST REQUIRED SUPPLEMENTARY INFORMATION For the Year Ended September 30, 2017 and 2016 (In Thousands)

18

Schedule of DART’s Net Pension Liability* (Amounts in Thousands, Except Percentages)

2017

2016

2015

2014

Total pension liability $225,254 $220,462 $218,166 $219,019 Plan fiduciary net position (180,355) (168,334) (154,468) (156,829) DART’s net pension liability $44,899 $52,128 $63,698 $62,190 Plan fiduciary net position as a percentage of total pension liability

80.07% 76.35% 70.80% 71.61%

Covered payroll $15,642 $18,914 $19,129 $19,438 DART’s net pension liability as a percentage of covered payroll

293.43% 275.60% 332.99% 319.94%

Schedule of Changes in DART’s Net Pension Liability (Amounts in Thousands, Except Percentages)

2017

2016

2015

2014

Total pension liability Service cost $1,107 $1,282 $954 $502 Interest 14,501 14,969 14,644 14,674 Changes in benefit terms - - - - Difference between expected and actual experience 2,655 (2,815) (5,082)

-

Changes in assumptions - 63 - - Benefit payments (13,471) (11,203) (11,369) (11,364)

Net change in total pension liability 4,792 2,296 (853) 3,812 Total pension liability – beginning 220,462 $218,166 $219,019 $215,207

Total pension liability – ending (a) $225,254 $220,462 $218,166 $219,019

Plan fiduciary net position Contributions-employer $10,000 $9,217 $8,706 $9,122 Contributions-member 2 2 2 2 Net investment income 15,590 16,067 520 12,532 Benefit payments (13,471) (11,202) (11,369) (11,364) Administrative expenses (100) (218) (219) (250)

Net change in plan fiduciary net position 12,021 13,866 (2,361) 10,042 Plan fiduciary net position-beginning 168,334 154,468 156,829 146,787 Plan fiduciary net position-ending (b) $180,355 $168,334 $154,468 $156,829

DART’s net pension liability-ending (a) – (b) $44,899 $52,128 $63,698 $62,190

*The schedule of DART’s net pension liability and the schedule of changes in DART’s net pension liability are presented here only for four years since the information required by GASB Statement No. 67, Financial Reporting for Pension Plans, an amendment of GASB Statement No. 25, is available for the years ended September 30, 2017, 2016, 2015, and 2014.


19

Schedule of DART’s Contributions (Amounts in Thousands, Except Percentages)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Actuarially determined contribution $4,655 $5,036 $6,212 $6,266 $8,045 $9,074 $9,122 $8,706 $9,217 $7,755 Contributions in relation to the actuarially determined contribution 4,655

5,036

6,212

6,266

8,045

9,074

9,122

8,706

9,217

10,000

Contribution deficiency (excess) $ - $ - $ - $ - $ - $ - $ - $ - $ -

($2,245)

Covered payroll $24,832 $24,721 $23,904 $23,727 $19,306 $19,467 $19,438 $19,129 $18,914 $15,642

Contributions as a percentage of covered payroll

18.75% 20.37% 25.99% 26.41% 41.67% 46.61% 46.93% 45.51% 48.73% 63.93%

Schedule of Investment Returns*

2017 2016 2015 2014

Annual money-weighted rate of return, net of investment expenses

9.36% 10.48% 0.33% 8.27%

*The schedule of investment returns presented here is for four years only since the information required by GASB Statement No. 67, Financial Reporting for Pension Plans, an amendment of GASB Statement No. 25, is available starting only from the year ended September 30, 2014. Notes to Required Supplementary Information Changes in benefit terms – there was no change in benefit terms during Plan fiscal years 2017, 2016, and 2015. Changes in assumptions – For measurement date 09/30/2016, amounts reported as changes of assumptions resulted from an actuarial experience study dated August 19, 2016, the Retirement Committee approved a number of changes to the actuarial assumptions and methods, as outlined below: - The actuarial cost method was changed from The Projected Unit Credit to The Entry Age Normal actuarial cost method. - The assumed rate of investment return was lowered from 7.00% to 6.75% per year, net of all expenses. - The salary

increase assumption was lowered from 3.25% to 3.00% per year until the assumed retirement age. - The assumed rates of retirement were amended at certain ages. - The assumed rates of disablement were reduced in half. - The outdated funding method of developing the minimum required contribution as if the plan were subject to Section 412 of the Internal Revenue Code of 1986 was removed. Beginning with this valuation, the minimum required contribution will be developed to be consistent with the methodology utilized for other public pension plans.

- The assumed rates of mortality were amended to remove incorporating fully generational mortality improvements and implement projecting mortality improvements to the valuation date.

- The assumed rates of termination were amended at certain ages and to eliminate varying rates by gender. Methods and assumptions used in calculation of actuarially determined contributions. Actuarially determined contributions are calculated as of October 1, in the Plan fiscal year in which contributions are reported. That is, the contribution calculated as of October 1, 2017 will be made during the Plan fiscal year ended September 30, 2018.


20

Actuarial Cost Method: Entry Age Normal actuarial cost method is used to determine contributions

Actuarial cost method Entry Age Normal Investment rate of return, 6.75%, net of pension plan investment expenses Amortization method Level dollar Remaining amortization period (in years)

Gains and losses are amortized over 15 years, assumption changes and plan changes are amortized over 30 years

Asset valuation method Actuarial value of assets are calculated based on 5-year phase-in of investment gains and losses

Inflation 2.50% Salary increase 3.00% Mortality Healthy mortality rates were based on the RP-2000 combined mortality

table for males and females increased by 8.59% and projected generationally from 2000 by Scale AA. Disabled mortality rates were based on the RP-2000 disabled mortality tables for males and females.

DART Employees’ Defined Benefit Retirement Plan and Trust · General – The Plan is a...

Documents

Transcript of DART Employees’ Defined Benefit Retirement Plan and Trust · General – The Plan is a...