PERAC Memo #10 - 1999: 1998 Annual Statements

PERAC MEMO #10/1999 M E M O R A N D U M TO: All Retirement Boards FROM: James Waldman, Director of Finance RE: 1998 Annual Statements DATE: February 3, 1999 Enclosed are the Annual Statements forms for 1998. These forms must be completed, signed and returned to the Public Employee Retirement Administration Commission by May l, 1999. Once again, 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 expiration dates for board member’s term of office, new ledger accounts for pooled funds, and separation of realized gains/losses and unrealized gains/losses from investment income for pooled funds. Last year an appendix was added to the Annual Statement which includes the Plan Description, Significant Accounting Policies and Actuarial information. 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. Please include information from your last 3 valuations in the Schedule of Funding Progress. 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 February 21, 1999. 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 . M E M O R A N D U M - Page Two TO: All Retirement Boards FROM: James Waldman, Director of Finance RE: 1998 Annual Statements DATE: February 3, 1999 The 1998 changes to the Annual Statement are as follows: Signature Page: State the date of expiration of the term of office for each of the board members Page 2: All pooled funds must be categorized by the new pooled fund ledger numbers. This also applies to the listing for the prior years Schedule 5: Investment Income, realized gains/losses, and unrealized gains/losses for pooled funds must be categorized separately in columns (C), (D), and (E) respectively. 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: James Waldman, Director of Finance RE: 1998 Annual Statements DATE: February 3, 1999 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 7 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 1998 but not settled until 1999 must be included in the 1998 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.

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 8, 9, and 10 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 Four TO: All Retirement Boards FROM: James Waldman, Director of Finance RE: 1998 Annual Statements DATE: February 3, 1999 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 : 1040 Cash (Bank Name and Acct. No.) Debit 2-1 2-2 1041 Cash (Bank Name and Acct. No.) Debit 2-1 2-2 1042 Cash (Bank Name and Acct. No.) Debit 2-1 2-2 1043 Cash (Bank Name and Acct. No.) Debit 2-1 2-2 1100 Short Term Investments Debit 4-2 1180 Fixed Income Securities Debit 4-3 4-9 1170 Equities Debit 4-4 4-17 1101 Pooled Short Term Funds Debit 1172 Pooled Domestic Equity Funds Debit 1173 Pooled International Equity Funds Debit 1174 Pooled Global Equity Funds Debit 1181 Pooled Domestic Fixed Income Funds Debit 1182 Pooled International Fixed Income Funds Debit 1183 Pooled Global Fixed Income Funds Debit 1193 Pooled Alternative Investments/Private Equity Debit 1194 Pooled Real Estate Funds Debit 1195 Pooled Domestic Balanced Funds Debit 1196 Pooled International Balanced Funds Debit 1198 PRIT Cash Fund Debit 1199 PRIT CORE Fund Debit 1398 Account Receivable Debit 7-2 1550 Interest Due and Accrued Debit 5-8 2020 Accounts Payable Credit 7-1 Funds Balance: Manual Reference: 3293 Annuity Savings Fund Credit 5-1 5-10 3294 Annuity Reserve Fund Credit 5-1 5-10 3295 Special Fund for Military Service Credit Credit 5-1 5-10 3296 Pension Fund Credit 5-1 5-10 3297 Pension Reserve fund Credit 5-1 5-10 3298 Expense Fund Credit 5-1 5-10 M E M O R A N D U M - Page Five TO: All Retirement Boards FROM: James Waldman, Director of Finance RE: 1998 Annual Statements DATE: February 3, 1999 Receipts Balance: Close to: Manual Reference: 4891 Members Deductions Credit 3293 3-1 3-14 4892 Transfers From Other Systems Credit 3293 3-2 4893 Member Make Up Payments and Redeposits Credit 3293 3-3 4898 3(8)(c) Reimbursements from Other Systems Credit 3296 3-7 4899 Received from Commonwealth for COLA and Survivor Benefits Credit 3296 3-5 4884 Realized Gain/Profit on Sale of Investments Credit 4820 4-9 4885 Realized Loss/Loss on Sale of Investments Debit 4820 4-10 4886 Unrealized Gain/Increase in Market Value of Equities Credit 4820 4-28 4887 Unrealized Loss/Decrease in Market Value of Equities Debit 4820 4-29 4894 Pension Fund Appropriation Credit 3296 3-4 7-3 4895 Pension Reserve Appropriation Credit 3297 3-8 4896 Expense Fund Appropriation Credit 3298 3-6 7-3 4897 Federal Grant Reimbursement Credit 3297 3-18 4890 Contributions Rec’d from municipality on a/c of military service Credit 3295 3-9 4820 Investment Inc. - Control Acct Credit 3293, 3294, 3295, 3297, 3298 4-25 5-10 4821 Investment Income Received Credit 4820 4-25 5-10 4822 Interest Not Refunded Credit 3297 3-13 5-9 4823 Paid Accrued Interest on Fixed Income Securities Credit 4820 4-3 5-10 4828 Increase in Amortization of Fixed Income Securities Credit 4820 4-26 5-10 4829 Decrease in Amortization of Fixed Income Securities Debit 4820 4-27 5-10 M E M O R A N D U M - Page Six TO: All Retirement Boards FROM: James Waldman, Director of Finance RE: 1998 Annual Statements DATE: February 3, 1999 Disbursements Balance: Close to : Manual Reference: 5757 Refunds to Members Debit 3293 3-12 3-11 5756 Transfers to Other Systems Debit 3293 3-12 5750 Annuities Paid Debit 3294 3-15 5759 Option B Refunds Debit 3294 3-15 5751 Pensions Paid Debit 3296 3-15 5755 3 (8)(c) Reimbursements To Other Systems Debit 3296 3-17 5752 COLA’s Paid Debit 3296 3-15 3-10 5753 Chapter 389 Beneficiary Increase Paid Debit 3296 3-15 5118 5119 Board Member Stipend Staff Salaries Debit Debit 3298 3298 3-16 5-10 3-16 5-10 5308 Legal Expenses Debit 3298 3-16 5-10 5309 Medical Expenses Debit 3298 3-16 5-10 5719 Travel Debit 3298 3-16 5-10 5589 Administrative Expenses Debit 3298 3-16 5-10 5599 Furniture and Equipment Debit 3298 3-16 5-10 5304 Management Fees (Expense Fund) Debit 3298 3-16 5-10 5305 Custodial Fees (Expense Fund) Debit 3298 3-16 5-10 5307 Consultant fees (Expense Fund) Debit 3298 3-16 5-10 M E M O R A N D U M - Page Seven TO: All Retirement Boards FROM: James Waldman, Director of Finance RE: 1998 Annual Statements DATE: February 3, 1999 Calculation of Annuity Reserve Fund Interest Interest (Debits) Credits Fund Balance (Balance X.0025) January lst XXXXXXXXX XXXXXXXXX _____________ _____________ 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 interest XXXXXXXXX _____________ _____________ _____________ 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 Eight TO: All Retirement Boards FROM: James Waldman, Director of Finance RE: 1998 Annual Statements DATE: February 3, 1999 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:
10. 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)
11. 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 Nine TO: All Retirement Boards FROM: James Waldman, Director of Finance RE: 1998 Annual Statements DATE: February 3, 1999 Closing Entries - ( Cont’d.)
12. DEBIT Annuity Reserve Fund (Ledger #3294) CREDIT Annuities Paid (Ledger #5750) CREDIT Option B Refunds (Ledger #5759)
13. 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)
14. 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)
15. DEBIT Federal Grant reimbursement (Ledger #4897) DEBIT Pension Reserve Appropriation (Ledger #4895) DEBIT Interest Not Refunded (Ledger #4822) CREDIT Pension Reserve Fund (Ledger #3297)
16. 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) CREDIT Consultant Fees (Ledger #5307) M E M O R A N D U M - Page Ten TO: All Retirement Boards FROM: James Waldman, Director of Finance RE: 1998 Annual Statements DATE: February 3, 1999 Closing Entries - ( Cont’d.)
17. THIS ENTRY IS ONLY FOR SYSTEMS THAT STILL HAVE AN EXPENSE FUND APPROPRIATION DEBIT Expense Fund Appropriation (Ledger #4896) CREDIT Expense Fund (Ledger #3298)
18. DEBIT Special Fund for Military Service Credit (Ledger #4890) CREDIT Special Fund for Military Service Credit (Ledger #3295)
19. 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 Realized Loss/Loss on Sale of Investments (Ledger #4885) CREDIT Unrealized Loss/ Decrease in Market Value of Equities (Ledger #4887)
20. DEBIT Investment Income Received (Ledger #4821) DEBIT Increase in Amortization of Fixed Income Securities (Ledger #4828) DEBIT Realized Gain/Profit on Sale of Investments (Ledger #4884) DEBIT Unrealized Gain/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. **Transfer exact amount that will result in a zero balance in the Expense Fund