PERAC Memo #4 - 1998: 1997 Annual Statements

PERAC MEMO #4/1998 M E M O R A N D U M TO:All Retirement Boards FROM:Robert F. Stalnaker, Executive Director RE:1997 Annual Statements DATE:January 28, 1998 Enclosed are the Annual Statements forms for 1997. These forms must be completed, signed and returned to the Public Employee Retirement Administration Commission by May l, 1998. This year, a PERAC auditor will be assigned to work with you and provide any technical assistance that is needed. The auditor that is assigned to you will be contacting you within the next two weeks. Changes to this year’s statement include an appendix to the annual statement as part of our multiyear effort to meet the reporting requirements of the Governmental Accounting Standards Board. The first 2 pages of the appendix state the plan description and significant accounting policies. Systems should read these pages carefully in order to make any changes to wording that does not apply to your system. The last page of the appendix will have actuarial information that is based on actuarial valuations of your system. Additionally, you must attach a copy of your most recently approved funding schedule. If you need assistance in completing the actuarial information, please contact this office. Prior to completing the annual statement, it is necessary that all accounting be kept on a current basis, and, therefore, we are asking that all boards submit their December cashbook and preclosing trial balances by January 21, 1998. If you are having difficulty adhering to this deadline, please contact Jim Waldman. If you submit schedules 1 through 6 from a custodian and the schedules are not in the prescribed format, you must type the totals on PERAC’s schedules with the page reference to the custodial statement. Please be sure that all schedules are totaled and that these amounts agree with the corresponding amounts on the Annual Statement. Enclosed you will find a copy of the screens used in the recent Annual Statement presentation. We hope that you will find these useful.

M E M O R A N D U M - Page Two TO:All Retirement Boards FROM:Robert F. Stalnaker, Executive Director RE:1997 Annual Statements DATE:January 28, 1998 The 1997 changes to the Annual Statement are as follows:

1. On page 2 there is an additional line for total assets at market value. This amount can be calculated by taking total assets and subtracting fixed income securities at book value and adding fixed income securities at market value.
2. Ledger accounts 5301, 5302, 5306 and 15ll are no longer active.
3. The amount to be transferred from the investment income to the expense fund is determined by the negative balance in the Expense Fund after performing closing entries 7 and 8. The amount to be transferred will be the exact amount necessary to bring the Expense Fund balance to zero on December 31st.
4. Membership Schedule A. It is no longer necessary to designate the sex of the individual member. B. Inactive are now included with the schedule for active members. (active members are those that had deductions in 1997, inactive members are those that had no deductions in 1997, the members that are being transferred to the Pension Reserve Fund can be counted with the withdrawals) C. The death of retirees who have beneficiaries who receive a beneficiary retirement allowance will be recorded as follows: The death of the retiree will be recorded on the line “Deaths of Retired Members” and the beneficiary will be recorded on the line “Beneficiary of Deceased Retiree”. Computer printed forms must be on paper no longer than 8 1/2 by 14 paper. If your paper is larger, you must print only in an area of 8 1/2 by 14 and cut off the excess prior to mailing to PERAC.

M E M O R A N D U M - Page Three TO:All Retirement Boards FROM:Robert F. Stalnaker, Executive Director RE:1997 Annual Statements DATE:January 28, 1998 The following steps must be taken in order for you to complete your annual statement:

1. The membership schedule must be completed to determine the Annuity Savings Fund interest required.
2. The same procedure must be followed to determine the Military Fund interest required.
3. The Annuity Reserve Fund interest must be calculated by multiplying the balance in the fund at the end of each month by .0025. You begin with the balance as of December 31st of last year and use the balances in the fund of each month through November 30th. The worksheet on page 8 should be used to calculate this interest.
4. Determine amount necessary to bring Expense Fund to zero
5. Complete the investment schedules. (Please remember that investments traded in 1997 but not settled until 1998 must be included in the 1997 Annual Statement). a. Determine the accrued interest b. Adjust equities to market value December 31st c. Determine current year investment income d. Post amortization of fixed income securities
6. Determine accounts receivable and accounts payable and make appropriate journal entry. All receivables and payables must be listed on Schedule A in the annual statement.
7. Using the before closing trial balance, you can enter the appropriate figures into the annual statement. The first page to be completed should be the investment income schedule

• page 6. Next, pages 4 and 5 can be completed using the balances before closing with the following exception. The amounts for 1(d), 2(a), 4(b), 5(b), and 6(d) on the receipts page can be found at the bottom of page 6.

M E M O R A N D U M - Page Four TO:All Retirement Boards FROM:Robert F. Stalnaker, Executive Director RE:1997 Annual Statements DATE:January 28, 1998 8. Page 3 can be completed next, by entering the beginning fund balances using the ending balances from last year. The next step is to take the totals of the receipts and disbursements for each fund from pages 4 and 5. The interfund transfers should be listed on the bottom half of page 3. Include both the interfund transfers made during the year and those made at the end of the year. (Do not treat interest not refunded as an interfund transfer, it is a receipt on page 4 (#6c.) You must lump together all items of the same nature, i.e. all transfers from the Annuity Savings Fund to the Annuity Reserve Fund on account of retirement, must be listed as one total. Finally, by adding the beginning balance to the receipts and interfund transfers(if negative amount, subtract) and subtracting the disbursements, you will have the balance for December 31st. 9. Next you will make the closing entries as indicated on pages 9, 10, and 11 of this memorandum. The fund balances must agree with the balances on page 3. If it does not, then there is a problem that must be corrected.

M E M O R A N D U M - Page Five TO:All Retirement Boards FROM:Robert F. Stalnaker, Executive Director RE:1997 Annual Statements DATE:January 28, 1998 Below you will find a listing of all ledger accounts. On this page are all the control accounts and on the next page you will find all the subsidiary accounts and the fund to which each subsidiary closes. Additionally, I have indicated whether the balance should be a debit or a credit balance along with the reference page number where this information can be located in the accounting manual. Please refer to chapters 5 and 7 when you close your books for the year. Assets Balance: Manual Reference: 1040Cash(Bank Name and Acct. No.)Debit2-1 2-2 1041Cash(Bank Name and Acct. No.)Debit2-1 2-2 1042Cash(Bank Name and Acct. No.)Debit2-1 2-2 1043Cash(Bank Name and Acct. No.)Debit2-1 2-2 1100ShortTerm InvestmentsDebit4-2 1180Fixed Income SecuritiesDebit4-3 4-9 1170EquitiesDebit4-4 4-17 1172Mutual or Commingled Real Estate FundsDebit4-5 4-19 1173Mutual or Commingled Venture Capital Funds Debit4-6 4-20 1174International InvestmentsDebit4-6 4-20 1197OptionsCredit4-7 1199PRIT Capital FundDebit6-1 1181Treasurer’s Masters TrustDebit4-31 1891Principal Adjustment AccountDebit4-11 1398Account ReceivableDebit7-2 1550Interest Due and AccruedDebit5-8 2020Accounts PayableCredit7-1 Funds Balance: Manual Reference: 3293Annuity Savings FundCredit5-1 5-10 3294Annuity Reserve FundCredit5-1 5-10 3295Special Fund for Military Service CreditCredit5-1 5-10 3296Pension FundCredit5-1 5-10 3297Pension Reserve fundCredit5-1 5-10 3298Expense FundCredit5-15-10

M E M O R A N D U M - Page Six TO:All Retirement Boards FROM:Robert F. Stalnaker, Executive Director RE:1997 Annual Statements DATE:January 28, 1998 Receipts Balance: Close to: Manual Reference: 4891Members DeductionsCredit32933-1 3-14 4892Transfers From Other SystemsCredit32933-2 4893Member Make Up Payments and RedepositsCredit32933-3 48983(8)(c) Reimbursements from Other SystemsCredit32963-7 4899Received from Commonwealth for COLA and Survivor Benefits Credit32963-5 4884Profit on Sale of InvestmentsCredit48204-9 4885Loss on Sale of InvestmentsDebit48204-10 4886Increase in Market Value of EquitiesCredit48204-28 4887Decrease in Market Value of EquitiesDebit48204-29 4888Principal Adj Account-Amortization LossDebit18916-8 4-37 4889Principal Adj Account-Amortization GainCredit18916-8 4-36 4894Pension Fund AppropriationCredit32963-4 7-3 4895Pension Reserve AppropriationCredit32973-8 4896Expense Fund AppropriationCredit32983-6 7-3 4897Federal Grant ReimbursementCredit32973-18 4890Contributions Rec’d from municipality on a/c of military service Credit32953-9 4820Investment Inc. - Control AcctCredit3293, 3294, 3295, 3297, 3298 4-25 5-10 4821Investment Income ReceivedCredit48204-25 5-10 4822Interest Not RefundedCredit32973-13 5-9 4823Paid Accrued Interest on Fixed Income Securities Credit48204-3 5-10 4828Increase in Amortization of Fixed Income Securities Credit48204-26 5-10 4829Decrease in Amortization of Fixed Income Securities Debit48204-27 5-10

M E M O R A N D U M - Page Seven TO:All Retirement Boards FROM:Robert F. Stalnaker, Executive Director RE:1997 Annual Statements DATE:January 28, 1998 Disbursements Balance: Close to: Manual Reference: 5757Refunds to MembersDebit32933-12 3-11 5756Transfers to Other SystemsDebit32933-12 5750Annuities PaidDebit32943-15 5759Option B RefundsDebit32943-15 5751Pensions PaidDebit32963-15 57553 (8)(c) Reimbursements To Other SystemsDebit32963-17 5752COLA’s PaidDebit32963-15 3-10 5753Chapter 389 Beneficiary Increase PaidDebit32963-15 5118 5119 Board Member Stipend Staff Salaries Debit Debit 3298 3298 3-165-10 3-16 5-10 5308Legal ExpensesDebit32983-16 5-10 5309Medical ExpensesDebit32983-16 5-10 5719TravelDebit32983-16 5-10 5589Administrative ExpensesDebit32983-16 5-10 5599Furniture and EquipmentDebit32983-16 5-10 5304Management Fees (Expense Fund)Debit32983-16 5-10 5305Custodial Fees (Expense Fund)Debit32983-16 5-10 5307Consultant fees (Expense Fund)Debit32983-16 5-10

M E M O R A N D U M - Page Eight TO:All Retirement Boards FROM:Robert F. Stalnaker, Executive Director RE:1997 Annual Statements DATE:January 28, 1998 Calculation of Annuity Reserve Fund Interest Interest (Debits) Credits Fund Balance (Balance X.0025) January lstXXXXXXXXXXXXXXXXXX__________________________ January 31st____________________________________________________ February 28th____________________________________________________ March 31st____________________________________________________ April 30th____________________________________________________ May 31st____________________________________________________ June 30th____________________________________________________ July 31st____________________________________________________ August 31st____________________________________________________ September 30th____________________________________________________ October 31st____________________________________________________ November 30th____________________________________________________ December 31st_______________________________________XXXXXXXXX Adjusting entry to add interestXXXXXXXXX_______________________________________ In order to calculate the interest required for the Annuity Reserve Fund you begin with the balance on January lst. Next you subtract from the January lst balance any debits such as annuities paid, option B refunds paid, as well as any transfer resulting from a surplus in the Annuity Reserve Fund. Next add any credits such as transfers from the Annuity Savings Fund and any transfer resulting from a deficit in the Annuity Reserve fund. You would then multiply each monthly balance by .0025. The total of the 12 months interest would then be entered as an adjusting entry and added to the balance of December 31st of the statement year.

M E M O R A N D U M - Page Nine TO:All Retirement Boards FROM:Robert F. Stalnaker, Executive Director RE:1997 Annual Statements DATE:January 28, 1998 Prior to closing, the following journal entry should be made to close out interest due and accrued as of the previous December 31 st : DEBIT Investment Income (Ledger #4820) CREDIT Interest Due and Accrued on Fixed Income Securities (Ledger #1550) The following journal entry should be made to enter Interest Due and Accrued as of December 31st of the current year: DEBIT - Interest Due and Accrued on Fixed Income Securities (Ledger #1550) CREDIT Investment Income (Ledger #4820) An analysis must be made to determine if there are any accounts receivable or accounts payable. See Chapter 7 in the Accounting Manual All accounts receivable and accounts payable must be entered on Schedule A of the Annual Statement. DEBIT Accounts Receivable (Ledger #1398) CREDIT Appropriate accounts - see Chapter 7 DEBIT Appropriate accounts - see Chapter 7 CREDIT Accounts Payable (Ledger #2020) Closing Entries Prior to closing out the subsidiary accounts to their proper funds, the balances in these accounts can be used in compiling the Receipts and Disbursements pages of the Annual Statement. Once this has been completed, you may make the following closing entries: 1.DEBIT Members’ Deductions (Ledger #4891) DEBIT Transfers from Other Systems (Ledger #4892) DEBIT Member Make Up Payments & Redeposits (Ledger #4893) CREDIT Annuity Savings Fund (Ledger #3293) 2.DEBIT Annuity Savings Fund (Ledger #3293) CREDIT Refunds to Members (Ledger #5757) CREDIT Transfer to Other Systems (Ledger #5756)

M E M O R A N D U M - Page Ten TO:All Retirement Boards FROM:Robert F. Stalnaker, Executive Director RE:1997 Annual Statements DATE:January 28, 1998 Closing Entries - (Cont’d.) 3.DEBIT Annuity Reserve Fund (Ledger #3294) CREDIT Annuities Paid (Ledger #5750) CREDIT Option B Refunds (Ledger #5759) 4.DEBIT Pension Fund (Ledger #3296) CREDIT Pensions Paid (Ledger #5751) CREDIT 3 (8) (c) Reimbursement to other systems (Ledger #5755) CREDIT COLAS Paid (Ledger #5752) CREDIT Chapter 389 Benefits Paid (Ledger #5753) 5.DEBIT 3 (8) (c) Reimbursements from other systems (Ledger #4898) DEBIT Received from Comm. for COLA’s and Chapter 389 Paid (Ledger #4899) DEBIT Pension Fund appropriation (Ledger #4894) CREDIT Pension Fund (Ledger #3296) 6.DEBIT Federal Grant reimbursement (Ledger #4897) DEBIT Pension Reserve Appropriation (Ledger #4895) DEBIT Interest Not Refunded (Ledger #4822) CREDIT Pension Reserve Fund (Ledger #3297) 7.DEBIT Expense Fund (Ledger #3298) CREDIT Board Member Stipend (Ledger #5118) CREDIT Salaries (Ledger #5119) CREDIT Legal Expenses (Ledger #5308) CREDIT Medical Expenses (Ledger #5309) CREDIT Travel (Ledger #5719) CREDIT Administrative Expenses (Ledger #5589) CREDIT Furniture and Equipment (Ledger #5599) CREDIT Management Fees (Ledger #5304) CREDIT Custodial Fees (Ledger #5305)

M E M O R A N D U M - Page Eleven TO:All Retirement Boards FROM:Robert F. Stalnaker, Executive Director RE:1997 Annual Statements DATE:January 28, 1998 CREDIT Consultant Fees (Ledger #5307) Closing Entries - (Cont’d.) 8.DEBIT Expense Fund Appropriation (Ledger #4896) CREDIT Expense Fund (Ledger #3298) 9.DEBIT Special Fund for Military Service Credit (Ledger #4890) CREDIT Special Fund for Military Service Credit (Ledger #3295) 10.DEBIT Investment Income (Ledger #4820) CREDIT Paid Accrued Interest on Fixed Income Securities (Ledger #4823) CREDIT Decrease in Amortization of Fixed Income Securities (Ledger #4829) CREDIT Loss on Sale of Investments (Ledger #4885) CREDIT Decrease in Market Value of Equities (Ledger #4887) 11.DEBIT Investment Income Received (Ledger #4821) DEBIT Increase in Amortization of Fixed Income Securities (Ledger #4828) DEBIT Profit on Sale of Investments (Ledger #4884) DEBIT Increase in Market Value of Equities (Ledger #4886) CREDIT Investment Income (Ledger #4820) To close the Investment Income Account to the Annuity Savings, Annuity Reserve, Expense, and Military Service Funds for the amount of interest required for these funds, with the balance going into the Pension Reserve Fund: DEBIT Investment Income (Ledger #4820) CREDIT Annuity Savings Fund (Ledger #3293) CREDIT Annuity Reserve Fund* (Ledger #3294) CREDIT Special Fund For Military Service (Ledger #3295) CREDIT Expense Fund (Ledger #3298) CREDIT Pension Reserve Fund (Ledger #3297) *Use worksheet on page 8 for the calculation of interest for the Annuity Reserve Fund. p/finance/general/anstat97.doc