GEORGIA FIREFIGHTERS' PENSION FUND - TABLE OF CONTENTS - SECTION I - FINANCIAL Independent Auditor's Report Basic Financial Statements Statement of Fiduciary Net Assets Statement of Changes in Fiduciary Net Assets Notes to the Financial Statements Required Supplementary Information Schedule of Funding Progress Schedule of Contributions from the Employer and Other Contributing Entities - SECTION I1 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCLAL STATEMENTS PERF'ORMED IN ACCORDANCE WITH GOWRNMENTA UDITING STANDARDS (This page intentionally left blank) SECTION I - FINANCIAL (This page intentionally left blank) DEPARTMEONFTAUDITASND ACCOUNTS 270 Washington St. S.W. Suite 1-156 Atlanta, Georgia 30334 RUSSELWL. HINTON STATE AUDITOR (404) 656-2174 INDEPENDENT AUDITOR'S REPORT Honorable Nathan Deal, Governor of Georgia Members of the General Assembly of the State of Georgia Members of the Georgia Firefighters' Pension Fund and Mr. James R. Meynard, Executive Director Ladies and Gentlemen: We have audited the accompanying basic financial statements of the Georgia Firefighters' Pension Fund, a component unit of the State of Georgia, as of and for the year ended June 30,201 1, as listed in the table of contents. These financial statements are the responsibility of the Georgia Firefighters' Pension Fund's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted o w audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Georgia Firefighters' Pension Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In o w opinion, the financial statements referred to above present fairly, in all material respects, the fiduciary net assets of the Georgia Firefighters' Pension Fund, as of June 30, 2011, and the changes in fiduciary net assets for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated February 2, 2012 on our consideration of the Georgia Firefighters' Pension Fund's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of o w audit. The Schedule of Funding Progress and Schedule of Contributions fiom the Employer and Other Contributing Entities information on pages 12 through 13 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted primarily of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. The Georgia Firefighters' Pension Fund has not presented the Management's Discussion and Analysis that the Governmental Accounting Standards Board has determined is necessary to supplement, although not required to be part of, the basic financial statements, Respectfully submitted, February 2,2012 RWH:cmh Russell W. Hinton, CPA, CGFM State Auditor BASIC FINANCIAL STATEMENTS GEORGLA FIREFIGHTERS' PENSION FUND STATEMENT OF FIDUCIARY NET ASSETS JUNE 30,2011 Assets Cash and Cash Equivalents Receivables Interest and Dividends Due from Brokers for Securities Sold Other Investments Mutual Funds Municipal, U. S. and Foreign Government Obligations Corporate Bonds/Notes/Debentwes Asset-Backed Securities Stocks Mortgage lnvestrnents Real Estate Investment Trusts Capital Assets Land Buildings Machinery and Equipment Accumulated Depreciation Other Assets Total Assets Liabilities Accounts Payable and Other Accruals Due to Brokers for Securities Purchased Compensated Absences Payable Total Liabilities Net Assets Held in Trust for: Pension Benefits The notes to the financial statements are an integral part of this statement. 4 GEORGIA FIREFIGHTERS' PENSION FUND STATEMENT OF CHANGES IN FIDUCIARY NET ASSETS FOR THE YEAR ENDED JUNE 30.2011 Additions: Contributions Plan Members Insurance Company Premium Taxes Interest and Other Investment Income Dividends and Interest Net Appreciation (Depreciation) in Investments Reported at Fair Value Less: Investment Expense Net Investment Income Other Miscellaneous Total Additions Deductions: General and Administrative Expenses Benefits Refunds Total Deductions Change in Net Assets Held in Trust for Pension Benefits Net Assets, July 1 Net Assets, June 30 The notes to the financial statements are an integral part of this statement. GEORGIA FIREFIGHTERS' PENSION FUND NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,201 1 A. PLAN DESCRIPTION ORGANIZATION AND PLAN DESCRIPTION The Georgia Firefighters' Pension Fund is a cost-sharing multiple-employer defined benefit pension plan established in 1955 by the General Assembly of Georgia for the purpose of paying retirement benefits to firefighters of the State of Georgia. The Board of Trustees of the Pension Fund is comprised of five members and consists of the Governor or his designee, the Commissioner of Insurance or his designee, two active members of the Pension Fund appointed by the Governor and one retired beneficiary of the Pension Fund appointed by the Governor. The Georgia Firefighters' Pension Fund is included within the State of Georgia's basic financial statements as a part of the primary government. Any person employed as a firefighter or enrolled as a volunteer firefighter within the State of Georgia and any regular employee of the Pension Fund is eligible for membership. The Pension Fund is funded through a combination of member contributions paid by the affected firefighters and a tax imposed on gross insurance premiums written by insurance companies, corporations or associations for fire, inland, marine or allied lines, lightning, extended covetage, and windstorm policies covering property within the State of Georgia. CURRENT MEMBERSHIP The following analysis compares the membership of the Georgia Firefighters' Pension Fund at June 30, 201 1, to that of the prior year: Retirees and Beneficiaries Currently Receiving Benefits For Disability For Retirement For Survivorship Terminated Members Entitled to, But Not Yet Receiving Benefits June 30,20 11 June 30,20 10 39 3,595 3 17 46 40 3,407 303 5 0 Total Number of Active Members BENEFITS The Georgia Firefighters' Pension Fund provides retirement as well as disability and death benefits. Benefit provisions and vesting requirements are established by statute and may be amended only by the General Assembly of Georgia. A description of plan benefits and vesting requirements is as follows: (A) RETIREMENT CONDITIONS: A member shall be eligible to receive retirement benefits at age 55 provided the member has 25 years of service. A member may be eligible to receive a pro rata share of benefits, at the latter of age 55 or at the member's termination as a firefighter or volunteer firefighter, after at least 15 years of service (amount received to be the maximum benefit amount times a ratio of years of service to 25 years). At age 50, a member may elect to receive a percentage of benefits to which the member would have been eligible to receive at age 55. A member must have terminated his or her service as a firefighter or volunteer firefighter to receive benefits. GEORGIA FIREFIGHTERS' PENSION FUND NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,2011 A. PLAN DESCRIPTION (B) RETIREMENT BENEFITS: The maximum retirement benefit at June 30,201 1 is $882 per month for the life of the member. The Board of Trustees is authorized to provide for increases effective as of January 1 and July 1 of each year up to 1% percent of the maximum retirement benefit then in effect. Members retiring after July 1, 1984 with service in excess of 25 years are entitled to an additional one percent of the maximum benefit in effect at the time of retirement for each additional full year of service. Members retiring after July 1,2002 with service in excess of 25 years are entitled to an additional two percent of the maximum benefit in effect at the time of retirement for each additional full year of service. (C) OPTIONAL BENEFITS: Members may elect, as an alternate to the benefit described above, to receive an actuarially reduced benefit payable during the joint lifetime of the member and the member's spouse, continuing after the death of the member during the lifetime of the spouse or a ten years' certain and life option where an actuarially reduced benefit is received during the member's lifetime and, in the event of the member's death within 10 years of retirement, the same monthly benefits shall be payable to the member's selected beneficiary for the balance of the 10 year period. (D) DISABILITY BENEFITS: Subject to the approval of the Board of Trustees, any firefighter or volunteer firefighter who was an active member, became totally and permanently disabled, applied for disability benefits, and was awarded such benefits prior to July 1, 1993 is entitled to a monthly disability benefit. The disability would need to have resulted from injuries suffered while performing duties of the position to which he was regularly assigned or was rendered, by heart disease or respiratory disease, totally and permanently disabled and as a result of such physical disability, was separated from his work as a firefighter or appointment as a volunteer firefighter. (E) DEATH BENEFITS (1) In the event of the death of a member of the Pension Fund on or after July 1, 2001, who is in good standing and who has not commenced receiving any benefits; the designated beneficiary of such deceased member shall be entitled to be paid the amount of $5,000. (2) In the event of the death of a member of the Pension Fund on or after July 1, 200 1, who is in good standing and who has commenced receiving benefits; but who has not received total benefits in the amount of $5,000, the designated beneficiary of such deceased member shall be entitled to receive the difference between $5,000 and the amount of benefits received by such deceased member. (3) In the event of the death of a member with 15 years service, prior to commencing benefits, the spouse or beneficiary of the member is entitled to the retirement benefit elected to have been received by the member in accordance with the terms, above. (F) TERMINATION: In the event of the termination of a member prior to the completion of fifteen years of service as a firefighter, 95 percent of the member's contributions will be returned. GEORGIA FIREFIGHTERS' PENSION FUND NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,201 1 B. SUMMARY OF SIGNIFICANT ACCOUNTMG POLICIES BASIS OF ACCOUNTING The Pension Fund's financial statements are prepared on the accrual basis of accounting. Contributions from members are recognized as additions in the period in which the members provide services and insurance premiums tax are recognized annually, upon receipt. Retirement benefit and refund payments are recognized as deductions when due and payable. INVESTMENTS Investments are defined as those financial instruments with terms in excess of three months from the date of purchase and certain other securities held for the production of revenue. In addition, funds on deposit with the Pension Fund's investment custodian for purposes of continual investment are reflected as investments regardless of the term of the instruments. Investments are reported at fair value. Short-term investments are reported at cost, which approximates fair value. Securities traded on a national or international exchange are valued at the last reported sales price. C. CONTRIBUTIONS FUNDING POLICY The minimum annual employer contribution requirements are set forth in the Official Code of Georgia Annotated (O.C.G.A.) Section 47-20-10 and are not actuarially determined. This statute further prohibits any action to grant a benefit increase until such time as the minimum annual contribution requirements meet or exceed legislative requirements. Based on July 1,2009 valuation results, the Fund does not meet minimum funding standards under the Georgia Code due to the significant asset losses for the last two years. Member contribution requirements are set forth in O.C.G.A. Section 47-7-60 and are not actuarially determined. Administrative expenses are paid from funds received by the Pension Fund. A description of contribution requirements is as follows: (A) MEMBERS CONTRIBUTIONS: Each member must contribute $15 per month, to be paid no later than the tenth day of each month. In 201 1 , member contributions were $2,537,358. (B) INSURANCE PREMIUMS TAX: Every fire insurance company, corporation or association doing business within the State of Georgia must pay to the executive director of the Georgia Firefighters' Pension Fund one percent of the gross premiums, written by such insurance company, corporation, or association for fire, lightning, or extended coverage, inland marine or allied lines, or windstorm insurance policies covering property within the State of Georgia. In 201 1, insurance premiums tax contributions were $25,965,514. GEORGIA FIREFIGHTERS' PENSION FUND NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,2011 D. FUNDED STATUS AND FUNDING PROGRESS The funded status of the plan as of June 30,2009, the most recent actuarial valuation date, is as follows: Actuarial value of Plan assets Acturial accrued liability (AAL) entry age Unfunded AAL (UAAL) (funding excess) Funding ratio Annual covered payroll UAAL (funding excess) as a percentage of covered payroll The schedule of funding progress, presented as required supplementary information following the notes to the financial statements, presents multi-year trend information about whether the actuarial values of plan assets are increasing or decreasing over time relative to the AAL for benefits. Additional information as of the latest actuarial valuation follows: Valuation date July 1,2009 Actuarial cost method Entry age normal Amortization method Level dollar, open Remaining amortization period 30 years Asset valuation method Five-year smoothed market value Actuarial assumptions: Investment rate of return 6% Projected salary increases nla Cost-of-living adjustments n/a E. SUBSEQUENT EVENTS The notes to the financial statements are based on the latest actuarial report available, which was dated January 20 10, with an actuarial valuation date of July 1,2009. An actuarial study is now in progress and is due to be completed in March, 2012. (This page intentionally left blank) REQUIRED SUPPLEMENTARY INFORMATION GEORGIA FIREFIGHTERS' PENSION FUND SCHEDULE OF FUNDING PROGRESS JUNE 30,2011 Actuarial Valuation Date July 1, 2005 July 1,2007 July 1,2009 Actuarial Value of Assets (a) Actuarial Accrued Liability (AAL) - Entry Age Normal (b) Unfunded AAL/(Funding Excess) (UAAL) @-a) Funded Ratio (am) Covered Payroll (c) UAAL as a Percentage of Covered Payroll ((b-a)/c) $ 527,554,698 $ 579,427,484 $ 5 1,872,786 604,379,384 661,805,609 57,426,225 492,25 1,109 746,144,702 253,893,593 The actuarial value of assets at July 1, 2009 is equal to 115% of the market value of assets. GEORGIA FIREFIGHTERS' PENSION FUND SCHEDULE OF CONTRIBUTIONS FROM THE EMPLOYER AND OTHER CONTRIBUTING ENTITIES JUNE 30,2011 Fiscal Year 2005 2006 (See Note) 2007 2008 2009 2010 Annual Required Contribution Percentage Contributed Note: Actuarial determination of Annual Required Contribution includes Class Nine Fire Department Pension Fund. Actual Employer Contributions were presented in separately issued audit reports for fiscal year ended 2006 as follows: Firefighters' Pension Fund $20,449,544 Class Nine Fire Department Pension Fund 584,002 (This page intentionally left blank) SECTION 11 - REPORT ON IN'rEHNAL CON'TROI, OVER FINANCIAI, REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED lN ACCORDANCE WITH GOVERNMENTAUDITING STANDARDS (This page intentionally left blank) DEPARTMEONF TAUDITSAND ACCOUNTS 270 Washington St. S.W. Suite 1-156 Atlanta, Georgia 30334 RUSSELWL . HINTON STATE AUDITOR (404) 656-2174 REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITING STANDARDS Honorable Nathan Deal, Governor of Georgia Members of the General Assembly of the State of Georgia Members of the Georgia Firefighters' Pension Fund and Mr. James R. Meynard, Executive Director We have audited the basic financial statements of the Georgia Firefighters' Pension Fund, a component unit of the State of Georgia, as of and for the year ended June 30, 2011, and have issued our report thereon dated February 2,2012. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting Management of the Georgia Firefighters' Pension Fund is responsible for establishing and maintaining effective internal controls over financial reporting. In planning and performing our audit, we considered the Georgia Firefighters' Pension Fund's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Georgia Firefighters' Pension Fund's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the Georgia Firefighters' Pension Fund's internal control over financial reporting. A dejciency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Georgia Firefighters' Pension Fund's financial statements are fiee of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under GovernmentAuditing Standards. This report is intended solely for the information and use of management, members of the Georgia Firefighters' Pension Fund Board, and management of the State of Georgia, and is not intended to be, and should not be used by, anyone other than these specified parties. Respecthlly submitted, February 2,2012 RWH:cmh Russell W. Hinton, CPA, CGFM State Auditor