dart employees’ defined benefit retirement plan and trust€¦ · crowe horwath llp. independent...

DART Employees’ Defined Benefit Retirement Plan and Trust

Financial Statements as of and for the Years Ended September 30, 2016 and 2015

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

SEPTEMBER 30, 2016 AND 2015

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

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, 2016 and 2015, 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, 2016 and 2015, 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.

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 21, 2017

DART EMPLOYEES’ DEFINED BENEFIT RETIREMENT PLAN AND TRUST MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED)

SEPTEMBER 30, 2016 and 2015 (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, 2016 and 2015.

FINANCIAL HIGHLIGHTS

Net Position of the Plan was $168,334 as of September 30, 2016 compared to $154,468 as of September 30,2015.

The Plan’s total Net Position increased by $13,866 from 2015 to 2016 compared to a decrease of $2,361 from2014 to 2015.

The Plan’s total net investment income increased by $15,549 from 2015 to 2016 compared to a decreased by$12,013 from 2014 to 2015.

Benefit payments and administrative expenses decreased by $167 from 2015 to 2016 compared to a decrease of$26 from 2014 to 2015.

Employer and employee contributions increased by $511 from 2015 to 2016 compared to a decrease of $416from 2014 to 2015.

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 $168,334 at September 30, 2016 and $154,468 at September 30, 2015.

The Plan’s assets include cash and cash equivalents (2%), and investments (98%) as of September 30, 2016 compared to cash and cash equivalents (2%), and investments (98%) as of September 30, 2015. 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, 2016 and 2015 (In Thousands)

4

The Plan’s net position increased by $13,866 from 2015 to 2016 compared to an decrease of $2,361 from 2014 to 2015. The following table shows a summary of plan Net Position.

Plan Net Position

2016 2015 2014 Total assets (cash, cash equivalents, receivables, and investments)

$168,863 $156,088 $157,529

Total liabilities (529) (1,620) (700) Net Pension Position $168,334 $154,468 $156,829

The following table shows a summary of Changes in Plan Net Position for the fiscal years ended September 30, 2016 and 2015 with comparative information for 2014. Investment income reflects the net investment gain or loss in stocks, governmental securities, and corporate bonds.

Changes In Plan Net Position

2016 2015 2014 Investment income, net $16,068 $519 $12,532 Employer and employee contributions 9,219 8,708 9,124 Total additions 25,287 9,227 21,656 Benefit payments and administrative expenses (11,421) (11,588) (11,614) Net increase in Plan Net Position 13,866 (2,361) 10,042 Beginning Net Position 154,468 156,829 146,787 Ending Net Position $168,334 154,468 $156,829

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, 2016 and 2015 (In Thousands)

5

2016

2015

ASSETS Cash and cash equivalents

$3,309 $2,954 Accounts receivable, investments in-transit 60 1,656 Other receivables 4 13 Investments at fair value (Note 3)

Equity investments 81,753 73,077 Fixed income 66,017 62,723 Real estate investments 17,720 15,665 Total investments 165,490 151,465 TOTAL ASSETS 168,863 156,088 LIABILITIES

Accounts payable, investment management and administrative fees 158 168 Accounts payable, investments in-transit 371 1,452

TOTAL LIABILITIES 529 1,620

NET POSITION RESTRICTED FOR PENSIONS $168,334 $154,468

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, 2016 and 2015 (In Thousands)

6

2016 2015 ADDITIONS: Investment income:

Net investment gain (loss) $13,516 $(2,038) Interest and dividends 3,389 3,071 Investment manager fees (837) (514) Total investment income, net 16,068 519

Contributions: Employer 9,217 8,706

Employee 2 2 Total contributions 9,219 8,708

Total additions 25,287 9,227

DEDUCTIONS: Benefit payments 11,203 11,369

Administrative expenses 218 219 Total deductions 11,421 11,588

NET INCREASE (DECREASE) IN NET POSITION 13,866 (2,361)

NET POSITION: BEGINNING OF YEAR 154,468 156,829

END OF YEAR $168,334 $154,468

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, 2016 and 2015 (Amounts In Thousands)

7

1. DESCRIPTION OF THE PLAN

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

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 thePlan are those employees who, as of September 30, 1995, were covered under one of three predecessor plans, DallasTransit System Retirement Plan A (“Plan A”), Dallas Transit System Retirement Plan B and Dallas Transit SystemEmployees 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, 2016, the Plan's membership consisted of 1,190 total members; 288 activeemployees and 747 retirees and beneficiaries collecting benefits, and 155 terminated vested participants not yetreceiving benefits. At October 1, 2015, the Plan's membership consisted of 1,216 total members; 298 activeemployees and 755 retirees and beneficiaries collecting benefits, and 163 terminated vested participants not yetreceiving benefits.

Pension Benefits at Normal Retirement Date – A participant may elect normal retirement at age 60. Under normalretirement, a participant is entitled to monthly benefits equal to: 1) 2% times the number of years of credited serviceup to October 1, 1983; 2) plus 1.5% times the number of years of credited service after October 1, 1983 (2% forparticipants who are required to make contributions); 3) and the sum multiplied by the participant's final averagemonthly compensation.

A participant may elect early retirement at age 55 and completion of 10 years of credited service (30 years ofcredited service in the case of a participant who was in Plan A on September 30, 1995). Monthly income underthis election will equal normal retirement benefits reduced by 5/12 of 1% for each full month by which theparticipant's early retirement date precedes the normal retirement date. Participants may also elect a distributionoption 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 dueto a physical or mental condition that results in the participant being awarded disability retirement benefits by theSocial Security Administration. A participant who becomes disabled after completion of ten years of creditedservice, or whose disability is service related, will receive benefits earned through the date of termination. If thedisability is service-related, there is a minimum monthly benefit equal to 20% of final average monthlycompensation. Beneficiaries of participants who die after completion of ten years of credited service or whosedeath is service related will receive benefits equal to 50% of the reduced amount that would have been payable tothe participant based on the assumption that the participant lived until Normal Retirement Date, retired, and electedthe Joint and Fractional Survivor Election. If death is service related, there is a minimum monthly benefit equal tothe 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 monthlysalaries to the Plan. DART's contribution amount to the Plan is actuarially determined each year. The contributionamount is determined using the minimum funding standard under IRC Section 412 as it existed in 1986. The actualcontributions and percentage of covered payroll for the years ended September 30, 2016, and 2015, were as follows:

2016 2015 Amount % of covered payroll Amount % of covered payroll

Contributions: DART $9,217 48.73 $8,706 45.51

Employees 2 0.01 2 0.01 Total $9,219 48.74 $8,708 45.52

DART EMPLOYEES’ DEFINED BENEFIT RETIREMENT PLAN AND TRUST NOTES TO FINANCIAL STATEMENTS For the Years Ended September 30, 2016 and 2015 (Amounts In Thousands)

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 this 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, 2016 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 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 TERRA CAP PARTNERS III hold investments in a pooled real estate

fund of diversified properties.


10

The following table shows the allocation of the Plan's total investments as of September 30, 2016 and 2015, and the allocation of Changes in Net Position for the years then ended.

INVESTMENTS 2016 2015 Fixed income investments: Fixed income separately managed accounts: GARCIA HAMILTON Intermediate Fixed Income Portfolio $22,804 * $21,481 * CS McKEE Intermediate Government / Credit Fixed Income Portfolio 21,456 * 20,563 * RYAN LABS Intermediate Market Enhanced Fixed Income Portfolio 21,757 * 20,679 * Total fixed income investments 66,017 62,723

Equity investments: Stock common collective trust funds: US Total Market Index NL Fund 11,212 * 10,494 * Stock mutual funds: Oppenheimer Growth 5,094 First Eagle Investment Management International All Cap Value Equity 6,936 11,459 * Separately managed accounts: WHV Investments International Large Cap Equity Portfolio 7 Jo Hambro 5,431 Earnest Partners portfolio 14,551 * 13,236

Longview Mid Cap 21,974 * 24,078 * Seizert Capital Partners Large Cap Core Equity 16,555 * 13,803 * Total separately managed accounts 58,511 51,124 Total equity investments 81,753 73,077 Other common collective trust funds:

TERRA CAP PARTNERS III 823 Real Estate Separate Account (UBS) 16,897 * 15,665 * TOTAL INVESTMENTS $165,490 $151,465

Net appreciation in fair value of investments: Fixed income investments $1,134 $73 Equity investments, including stock mutual funds 12,382 (2,111) Net appreciation in fair value of investments 13,516 (2,038) Interest and dividends 3,389 3,071 Investment manager fees (837) (514) NET INVESTMENT INCOME $16,068 $519 * 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, 2016 was 10.48% compared to 0.33% as of September 30, 2015. 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 investments as of September 30, 2016 and 2015.

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

Credit Rating as of September 30, 2015 Investment Type

Total Amount

AA+/ AAA

AA

A

< BAA

Not Rated

Fixed Income Investments: Agency $18,620 $18,620 Asset Backed Securities 1,370 $221 $222 $228 $699 Cash and Cash equivalents 338 338 Corporate Bonds and Notes 20,686 7,943 10,576 2,152 15 Mortgage Backed Securities 2,509 575 539 555 840 U.S. Treasury Bonds & Notes 19,200 19,200 62,723 38,395 8,164 11,337 2,935 1,892 Equity Investments 73,077 73,077 Real Estate Funds 15,665 15,665 Total $151,465 $38,395 $8,164 $11,337 $2,935 $90,634

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 30.09% ($50,647) of the Plan’s net position represent investments in external investment pools and open-ended mutual funds for 2016 compared to 29.80% ($46,031) for 2015. 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, Earnest Partners, and Seizert Capital Partners which represent approximately 57.70% ($97,122) of the total net position of the Plan for 2016 compared to approximately 58.11% ($89,769) for 2015, 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, 2016 or 2015. 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, 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. At September 30, 2015, the Plan’s portfolio consists of 48.25% ($73,077) equity investments, 10.34% ($15,665) real estate funds, and 41.41% ($62,723) debt securities. Information about the sensitivity of the fair values of the Plan’s investments to market interest rate fluctuation as of September 30, 2016 and 2015, are shown as follows:

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 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, 2015)

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 $18,620 $352 $417 $5,087 $12,764 Asset Backed Securities 1,370 79 663 628 Cash and Cash equivalents 338 338 Corporate Bonds and Notes 20,686 2,352 9,858 8,476 Mortgage Backed Securities 2,509 2,509 U.S. Treasury Bonds & Notes 19,200 3,472 2,900 3,634 9,194 62,723 4,241 5,669 19,242 33,571 Equity Investments 73,077 $73,077 Real Estate Funds 15,665 15,665 Total $151,465 $4,241 $5,669 $19,242 $33,571 $88,742

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, 8.79% or $14,558 of the Plan’s investments for 2016, and 4.97% or $7,679 for 2015, are in foreign currency – denominated investments. The Plan’s exposure to foreign currency risk as of September 30, 2016 and 2015, are shown in U.S. Dollars in the table below.

Investment Type

Currency 2016 Fair Value

(In US Dollars) 2015 Fair Value

(In US Dollars) Equity Investments Australian Dollar $710 $107 Brazilian Real 121 British Pound 1,900 751 Canadian Dollar 855 238 Danish Krone 448 55 European Monetary Unit (Euro) 4,735 2,248 Hong Kong Dollar 549 332 Indian Rupee 68 Indonesian Rupiah 6 Israeli Shekel 13 33 Japanese Yen 2,918 2,324 Mexican Peso 136 71 Norwegian Krone 156 72 Polish Zloty 7 Singapore Dollar 172 382 South African Rand 44 South Korean Won 204 446 Swedish Krona 275 140 Swiss Franc 1,082 345 Taiwanese Dollar 15 31 Thai Baht 132 85 Turkish Lira 12 19 Total $14,558 $7,679


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, 2016 using quoted market prices.

Fair Value Measurements as of September 30, 2016 Investment Type

Total Amount

Level 1 Level 2 Level 3

Agency $ 16,849 $ - $ 16,849 $ - Asset Backed Securities 798 - 798 - Cash and Cash Equivalents 285 285 - - Corporate Bonds and Notes 24,474 - 24,474 - 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

Fair Value Measurements as of September 30, 2015 Investment Type

Total Amount

Level 1 Level 2 Level 3

Agency $ 18,620 $ - $ 18,620 $ - Asset Backed Securities 1,370 - 1,370 - Cash and Cash Equivalents 338 338 - - Corporate Bonds and Notes 20,686 - 20,686 - Mortgaged Backed Securities 2,509 - 2,509 - US Treasury Bonds & Notes 19,200 - 19,200 - Equity Investments 73,077 73,077 - - Real Estate Funds 15,665 - - 15,665 Total $ 151,465 $ 73,415 $ 62,385 $ 15,665


15

4. NET PENSION LIABILITY OF DART AND ACTUARIAL ASSUMPTIONS The components of the net pension liability of DART at September 30, 2016 and 2015:

2016 2015 Total pension liability $220,462 $218,166 Plan fiduciary net position (168,334) (154,468) DART’s net pension liability $52,128 $63,698 Plan fiduciary net position as a percentage of total pension liability 76.35% 70.80%

Actuarial Assumptions 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. 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, 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%

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. This is a change from 7.00 percent that was used to measure the total pension liability as of September 30, 2015. 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

Actuarial Assumptions as of October 1, 2015 The total pension liability was determined by actuarial valuation as of October 1, 2015 using the following actuarial assumptions. Investment Return 7% compounded annually, net of expenses. Salary Scales 3.25% 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, 2015 valuation were based on the census data collected as of October 1, 2015. Liabilities measured as of the census date were projected to September 30, 2015 assuming no demographic gains or losses. 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, 2014 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. Equity 40% 6.79% International Equity 10% 8.00% Fixed income 40% 3.10% Opportunity fund (includes Real Estate)

10% 7.00%


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 7 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 7 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 (6 percent) and one percentage-point higher (8 percent) than the current rate.

1% Decrease (6.00%)

Current Discount Rate (7.00%)

1% increase (8.00%)

DART net pension liability $92,118 $63,698 $47,840

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. The Plan 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, 2016 and 2015 (Amounts In Thousands)

18

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

2016

2015

2014

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

76.35% 70.80% 71.61%

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

275.60% 332.99% 319.94%

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

2016

2015

2014

Total pension liability Service cost $1,282 $954 $502 Interest 14,969 14,644 14,674 Changes in benefit terms Difference between expected and actual experience (2,815) (5,082) Changes in assumptions 63 Benefit payments (11,203) (11,369) (11,364) Net change in total pension liability 2,296 (853) 3,812 Total pension liability – beginning $218,166 $219,019 $215,207 Total pension liability – ending (a) $220,462 $218,166 $219,019 Plan fiduciary net position Contributions-employer $9,217 $8,706 $9,122 Contributions-member 2 2 2 Net investment income 16,067 520 12,532 Benefit payments (11,202) (11,369) (11,364) Administrative expenses (218) (219) (250) Net change in plan fiduciary net position 13,866 (2,361) 10,042 Plan fiduciary net position-beginning 154,468 156,829 146,787 Plan fiduciary net position-ending (b) $168,334 $154,468 $156,829 DART’s net pension liability-ending (a) – (b) $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 three 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, 2016, 2015, and 2014.


19

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

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Actuarially determined contribution $5,050 $4,655 $5,036 $6,212 $6,266 $8,045 $9,074 $9,122 $8,706 $9,217 Contributions in relation to the actuarially determined contribution 5,050

4,655

5,036

6,212

6,266

8,045

9,074

9,122

8,706

9,217

Contribution deficiency (excess) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Covered-employee payroll $24,527 $24,832 $24,721 $23,904 $23,727 $19,306 $19,467 $19,438 $19,129 $18,914 Contributions as a percentage of covered-employee payroll

20.59% 18.75% 20.37% 25.99% 26.41% 41.67% 46.61% 46.93% 45.51% 48.73%

Schedule of Investment Returns*

2016 2015 2014 Annual money-weighted rate of return, net of investment expenses 10.48% 0.33% 8.27%

*The schedule of investment returns presented here is for three 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 only for the years ended September 30, 2016, 2015, and 2014. Notes to Required Supplementary Information Changes in benefit terms – there was no change in benefit terms during Plan fiscal years 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, 2016 will be made during the Plan fiscal year ended September 30, 2016.


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€¦ · crowe horwath llp. independent...

Documents