Financial Statements December 31, 2011 and 2010 Mesa Developmental Services Contributory Tax Sheltered Annuity Plan

Transcription

1 Financial Statements Mesa Developmental Services Contributory Tax Sheltered Annuity Plan

2 Table of Contents Independent Auditor s Report... 2 Financial Statements Statements of Net Assets Available for Benefits... 3 Statement of Changes in Net Assets Available for Benefits... 4 Notes to Financial Statements... 5 Supplementary Information Schedule H, Line 4i - Schedule of Assets Held at End of Year... 13

3 Independent Auditor s Report Plan Administrator Mesa Developmental Services Contributory Tax Sheltered Annuity Plan Grand Junction, Colorado We were engaged to audit the accompanying statement of net assets available for benefits of Mesa Developmental Services Contributory Tax Sheltered Annuity Plan (the Plan ) as of, and the related statement of changes in net assets available for benefits for the year ended December 31, 2011 and the supplemental Schedule H, Line 4i-Schedule of Assets Held At End of Year as of December 31, These financial statements and supplemental schedule are the responsibility of the Plan's management. As permitted by 29 CFR of the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974, the Plan Administrator instructed us not to perform, and we did not perform, any auditing procedures with respect to the information summarized in Note 5, which was certified by The Variable Annuity Life Insurance Company, the asset custodian of the Plan, except for comparing such information with the related information included in the financial statements and supplemental schedule. We have been informed by the Plan Administrator that the asset custodian holds the Plan's investment assets and executes investment transactions. The Plan Administrator has obtained a certification from the asset custodian as of and for the year ended, and for the year ended December 31, 2011, that the information provided to the Plan Administrator by the asset custodian is complete and accurate. Because of the significance of the information that we did not audit, we are unable to, and do not, express an opinion on the accompanying financial statements and supplemental schedule taken as a whole. The supplemental schedule is presented for purposes of additional analysis and is not a required part of the financial statements but is required by the Department of Labor s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of The form and content of the information included in the financial statements and supplemental schedule, other than that derived from the information certified by the asset custodian, have been audited by us in accordance with auditing standards generally accepted in the United States of America and, in our opinion, are presented in compliance with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of Greenwood Village, Colorado September 26, DTC Blvd., Ste Greenwood Village, CO TF T F EOE

4 Statements of Net Assets Available for Benefits Assets Investments, at fair value $ 2,936,196 $ 2,918,088 Total assets 2,936,196 2,918,088 Net Assets Available for Benefits $ 2,936,196 $ 2,918,088 See Notes to Financial Statements 3

5 Statement of Changes in Net Assets Available for Benefits Year Ended December 31, 2011 Additions Investment income (loss) Net (depreciation) in fair value of investments $ (63,637) Interest and dividend income 13,655 Total investment income (loss) (49,982) Interest income on notes receivable from participants 4,268 Contributions Participant 207,039 Employer 98,959 Rollover 12,885 Total contributions 318,883 Total additions 273,169 Deductions Benefits paid to participants 251,454 Administrative fees 3,607 Total deductions 255,061 Net Increase 18,108 Net Assets Available for Benefits Beginning of Year 2,918,088 End of Year $ 2,936,196 See Notes to Financial Statements 4

6 Notes to Financial Statements Note 1 - Description of Plan The following brief description of the Mesa Developmental Services Contributory Tax Sheltered Annuity Plan (the Plan ) is provided for general information purposes only. Participants should refer to the Plan document for a more complete description of the Plan s provisions. General The Plan is a defined contribution plan established effective March 1, 1982, covering qualified employees of Mesa Developmental Services (the Company ), except leased employees. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ( ERISA ). Eligibility An employee is eligible to participate in the Plan immediately upon hire. Entry Date Employees may enter the Plan on the first day coinciding with the date they satisfy the eligibility requirements. Contributions Each year, participants may contribute up to 100% of their pretax annual compensation, as defined in the Plan document. Contributions are subject to certain Internal Revenue Code ( IRC ) limitations. Participants may also contribute amounts representing distributions from other qualified plans. The Company is required to make a contribution equal to 3% of the participant s compensation as defined by the Plan Document. Participant Accounts Each participant s account is credited with the participant s contribution, the Company s matching contribution, and plan earnings, and charged with withdrawals and an allocation of administrative expenses. Allocations are based on participant s earnings or account balances, as defined by the Plan Document. The benefit to which a participant is entitled is the benefit that can be provided from the participant s vested account. Investment Options Upon enrollment to the Plan, a participant may direct employee contributions and employer matching contributions in any of the funds offered by the Plan. Participants may change their investment options daily. Annuity Contract Plan assets are invested in an annuity contract with The Variable Annuity Life Insurance Company (VALIC). The contract offers a combination of fixed and variable investment options that a participant may choose to invest in. Vesting Participants are vested immediately in their deferral contributions, employer matching contributions, plus actual earnings thereon. 5

7 Notes to Financial Statements Plan Loans Participants investing through VALIC may use their vested balance to collateralize loans directly from VALIC outside the Plan. The balances of these policy loans are not paid through payroll deductions and are not included in the Plan assets. However, upon commencement of the loan, an amount equal to the principal amount loaned by VALIC is transferred from the participant s investment account to the Loan Collateral Fund and Loan Escrow Fund. These Funds are fixed income investments that earn a stated rate of interest that is allocated to the individual participant. As payments are made to VALIC outside the plan, the collateral is released from the Loan Collateral and Loan Escrow Funds and reinvested according to participant elections for contributions. A policy loan is considered to be in default when no payments are made within 45 days after the due date of the payment. Upon default, VALIC will foreclose on the loan and remove the collateral from the Plan if the participant has a right to a current distribution. If the participant is not eligible for a current distribution, the collateral will remain in the Plan until the loan is paid in full or the participant becomes eligible for a distribution. Payment of Benefits Participants may elect to receive either a lump-sum amount equal to the value of their vested interest or annual installments as defined in the Plan Document upon retirement, termination, death or disability. A terminated employee with a balance of less than $1,000 may be automatically paid out by the Plan upon termination. Distributions may be made, at the participant s election, from any accounts which are 100% vested prior to termination of employments upon attainment of age 59½ or financial hardship, as defined in the Plan document. Death Benefits The designated beneficiary is entitled to a death benefit distribution equal to the participants vested account balance. Other Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions set forth in ERISA. Participants are always 100% vested in all contributions. Note 2 - Significant Accounting Policies Basis of Accounting The financial statements of the Plan are prepared on the accrual basis of accounting. Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Accordingly, actual results may differ from those estimates. 6

8 Notes to Financial Statements Investment Valuation and Income Recognition The Plan s investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. See Note 4 for discussion of fair value measurements. Investment contracts held by a defined-contributions plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the new assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. The Statement of Net Assets Available for Benefits presents the fair value of the investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair value to contract value. The Statement of Changes in Net Assets Available for Benefits is prepared on a contract value basis. As of, the adjustment from fair value to contract value for fully benefit responsive investments was insignificant, and accordingly, the fair value of the investment contracts approximates contract value in the accompanying statements of net assets available for benefits. Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Net appreciation (depreciation) includes the plan s gains and losses on investments bought and sold as well as those held during the year. Payments of Benefits Benefit payments to participants are recorded upon distribution. Administrative Fees Certain administrative expenses of the Plan are paid by the Plan s Sponsor as provided in the Plan document. Subsequent Events The Plan sponsor has evaluated subsequent events through September 26, 2012, the date which the financial statements were available to be issued. Reclassifications Certain amounts from the prior year financial statements have been reclassified for comparative purposes to conform to the presentation in the current year financials. 7

9 Notes to Financial Statements Note 3 - Investments The Plan s investments that represented 5% or more of the Plan s net assets available for benefits as of December 31, 2011 and 2010 are as follows: Annual Contracts Mid Cap Index Fund $ 400,237 $ 385,805 Vanguard Wellington Fund 366, ,825 Fixed Account Plus 323, ,308 Stock Index Fund 211, ,543 Strategic Bond Fund 202, ,504 Vanguard Windsor II 168, ,414 International Small Cap Fund * * Investment balance less than 5% of the Plan s net assets for the applicable year. 146,372 During the year ended December 31, 2011, the Plan s investments (including gains and losses on investments bought and sold, as well as held during the year) in annuity contracts depreciated in value by $(63,637). The classification of investment earnings reported above and in the statement of changes in net assets may differ from the classification of earnings on Form 5500 due to different reporting requirements on Form Note 4 - Fair Value Measurements Topic ASC 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritized the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the authoritative guidance are described below: Level 1 - Level 2 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access. Inputs to the valuation methodology include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability; Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset's or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. 8

10 Notes to Financial Statements The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at. Annuity contract variable account option Valued by each purchase unit of interest owned by participants. The units of interest are revalued daily to reflect that day s performance of the underlying mutual fund minus any applicable fees and charges. Investment contract with insurance company Valued at fair value by discounting the related future cash flows based on current yields of similar instruments with comparable durations considering the credit worthiness of the issuer. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future values. Furthermore although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following table sets forth by level, within the fair value hierarchy, the Plan's assets at fair value as of : 2011 Level 1 Level 2 Level 3 Total Annuity Contract Fixed Income $ - $ 368,221 $ 417, ,526 Domestic Large Cap Equity - 581, ,499 Domestic Mid Cap Equity - 466, ,561 Hybrid (Equity & Fixed) - 453, ,008 International Equity - 131, ,312 International Small/Mid Cap - 130, ,609 Domestic Small Cap Equity - 128, ,799 Loan collateral and escrow - 121, ,755 Diversified Emerging - 50,204-50,204 Global Equity - 47,144-47,144 Specialty - 39,779-39,779 Total investments $ - $ 2,518,891 $ 417,305 $ 2,936,196 9

11 Notes to Financial Statements 2010 Level 1 Level 2 Level 3 Total Annuity Contract Fixed Income $ - $ 346,186 $ 425, ,835 Domestic Large Cap Equity - 583, ,851 Domestic Mid Cap Equity - 425, ,717 Hybrid (Equity & Fixed) - 418, ,991 International Equity - 283, ,633 Domestic Small Cap Equity - 217, ,195 Global Equity - 104, ,742 Loan collateral and escrow - 81,921-81,921 Specialty - 30,203-30,203 Total investments $ - $ 2,492,439 $ 425,649 $ 2,918,088 The tables below set forth a summary of changes in the fair value of the Plan's Level 3 assets: Fixed Income Balance, beginning of year $ 425,649 Unrealized gains 13,655 Purchases 46,404 Sales (95,932) Other 27,529 Balance, end of year $ 417,305 The amount of the total gains or losses for the period included in changes in net assets attributable to the change in unrealized gains or losses related to assets still held at the reporting date $ (64,162) Gains and losses (realized and unrealized) included in changes in net assets for 2011 are reported in net appreciated in fair value of investments in the Statement of Changes in Net Assets Available for Benefits. Changes in Fair Value Levels The availability of observable market data is monitored to assess the appropriate classifications of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period. We evaluated the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to total net assets available for benefits. For the year ended December 31, 2011, there were no significant transfers in or out of levels 1, 2, or 3. 10

12 Notes to Financial Statements Note 5 - Information Certified by the Asset Custodian The Plan administrator has elected the method of compliance permitted by Section of the Department of Labor s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of Accordingly, as permitted under such election, no independent auditing procedures were performed with respect to the information certified by VALIC. The Plan s asset custodian has certified its statement of accounts as of. The statement of accounts includes beginning and ending balances of investments held and detail of all transactions during the period, including investment earnings and interest income on notes receivable from participants. Note 6 - Tax Status The Plan terms have been drafted in reliance on the sample language provided by the Internal Revenue Service in the draft listing of Required Modifications issued April 4, The Plan is required to operate in conformity with the IRC to maintain the exclusion from tax for Plan participants. Plan management believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC. Therefore, no provision for income tax has been included in the Plan s financial statements. The Plan Administrator intends to apply for a determination letter on the Plan when the government opens such a program. Accounting principles generally accepted in the United States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain tax position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2011, there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; 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 Note 7 - Related Party and Party-in-Interest Transactions Investments in the Plan include investment contract accounts managed by VALIC. VALIC is an affiliate to AIG Federal Savings Bank, the custodian, as defined by the Plan. Therefore, these transactions qualify as exempt party-in-interest transactions. Fees paid by the Plan for investment management services were $3,607 for the year ended December 31, Note 8 - 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 that such changes could materially affect participants account balances and the amounts reported in the statement of net assets available for benefits. 11

13 Supplementary Information December 31, 2011 Mesa Developmental Services Contributory Tax Sheltered Annuity Plan

14 Schedule H, Line 4i - Schedule of Assets Held at End of Year EIN# December 31, 2011 (a) (b) (c) (d) (e) Identity of issue, borrower, lessor Description of Investment including maturity date, rate of Current or similar party interest, collateral or maturity value Cost Value * Aggressive Growth Lifestyle Annuity Contract ** $ 2,495 Ariel Appreciation Fund Annuity Contract ** 8,398 Ariel Fund Annuity Contract ** 20,417 * Blue Chip Growth Fund Annuity Contract ** 17,114 * Broad Cap Value Income Fund Annuity Contract ** 11 * Capital Conservation Fund Annuity Contract ** 11,433 * Conservative Growth Lifestyle Fund Annuity Contract ** 327 * Core Bond Fund Annuity Contract ** 13,490 * Core Equity Fund Annuity Contract ** 21,024 * Fixed Account Plus Annuity Contract ** 323,926 * Foreign Value Annuity Contract ** 58,671 * Global Equity Fund Annuity Contract ** 50,204 * Global Real Estate Fund Annuity Contract ** 33,301 * Global Social Awareness Fund Annuity Contract ** 9,695 * Global Strategy Annuity Contract ** 4,148 * Growth Fund Annuity Contract ** 12,760 * Health Sciences Fund Annuity Contract ** 11,104 * High Yield Bond Fund Annuity Contract ** 13,449 * Inflation Protected Fund Annuity Contract ** 9,983 * International Equities Fund Annuity Contract ** 66,411 * International Government Bond Annuity Contract ** 21,452 * International Growth I Fund Annuity Contract ** 6,230 * International Small Cap Fund Annuity Contract ** 130,609 * Large Cap Core Annuity Contract ** 4,203 * Large Cap Value Fund Annuity Contract ** 14,756 * Large Capital Growth Fund Annuity Contract ** 44,879 * Loan Collateral and Escrow Funds Annuity Contract ** 121,755 * Mid Cap Growth Fund Annuity Contract ** 9,583 * Mid Cap Index Fund Annuity Contract ** 400,237 * Mid Cap Strategic Growth Annuity Contract ** 3,099 * Mid Cap Value Fund Annuity Contract ** 24,827 * Moderate Growth Lifestyle Annuity Contract ** 77,003 * Money Market I Fund Annuity Contract ** 13,777 * Money Market II Fund Annuity Contract ** 24,998 * Science & Technology Fund Annuity Contract ** 28,675 * Short Term Fixed Account Annuity Contract ** 93,380 * Small Cap Fund Annuity Contract ** 4,177 * Small Cap Growth Fund Annuity Contract ** 102 * Small Cap Index Fund Annuity Contract ** 91,863 * Small Cap Special Value Fund Annuity Contract ** 0 * Small Cap Value Fund Annuity Contract ** 32,657 * Small Mid Growth Fund Annuity Contract ** 0 * Socially Responsible Fund Annuity Contract ** 85,369 * Stock Index Fund Annuity Contract ** 211,523 * Strategic Bond Fund Annuity Contract ** 202,711 * Value Fund Annuity Contract ** 985 See Notes to Financial Statements 13

15 Schedule H, Line 4i - Schedule of Assets Held at End of Year December 31, 2011 (a) (b) (c) (d) (e) Description of Investment Identity of issue, borrower, lessor including maturity date, rate of Current or similar party interest, collateral or maturity value Cost Value Vanguard Lifestrategy Moderate Annuity Contract ** 2,699 Vanguard Lifestrategy Conservative Annuity Contract ** 3,667 Vanguard Long-Term Treasury Annuity Contract ** 53,554 Vanguard LtInv-Grade Fund Annuity Contract ** 3,373 Vanguard Wellington Fund Annuity Contract ** 366,816 Vanguard Windsor II Annuity Contract ** 168,876 * Denotes party-in-interest $ 2,936,196 ** Not applicable as all investments are participant-directed. See Notes to Financial Statements 14