Management report, Judges of the Probate Courts Retirement Fund of Georgia, a component unit of the state of Georgia, fiscal year ended June 30, 2004

STATE OF GEORGIA
DEPARTMENT OF AUDITS AND ACCOUNTS
Russell W. Hinton State Auditor
MANAGEMENT REPORT JUDGES OF THE PROBATE COURTS
RETIREMENT FUND OF GEORGIA A COMPONENT UNIT OF THE STATE OF GEORGIA
YEAR ENDED JUNE 30, 2004

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA -TABLE OF CONTENTS-

LETTER OF TRANSMITTAL EXHIBITS

SELECTED FINANCIAL STATEMENTS

A SCHEDULE OF FIDUCIARY NET ASSETS

PENSION TRUST FUND

2

B SCHEDULE OF CHANGES IN FIDUCIARY NET ASSETS

PENSION TRUST FUND

3

C SELECTED FINANCIAL NOTES

4

SUPPLEMENTARY INFORMATION

SCHEUDLES

1 RECONCILIATION OF PER DIEM AND FEES

12

2 SCHEDULE OF FUNDING PROGRESS

13

3 SCHEDULE OF EMPLOYER CONTRIBUTIONS

14

DEPARTMENT OF AUDITS AND ACCOUNTS

254 Washington Street, S.W., Suite 214

w. RUSSELL HINTON
STATE AUDITOR
(404) 656-2174

Atlanta, Georgia 30334-8400

March 15, 2005
Honorable Sonny Perdue, Governor Members of the General Assembly of Georgia Members of the Board of Commissioners of the Judges of the Probate Courts Retirement Fund of Georgia
and Honorable Robert W. Carter, Secretary/Treasurer
Ladies and Gentlemen:
As part of our audit of the basic financial statements of the State of Georgia presented in the State of Georgia Comprehensive Annual Financial Report and the issuance of a Statewide Single Audit Report pursuant to the Single Audit Act Amendments, as of and for the year ended June 30, 2004, we have performed certain audit procedures at the Judges of the Probate Courts Retirement Fund of Georgia. Accordingly, the financial statements and compliance activities of the Judges of the Probate Courts Retirement Fund of Georgia were examined to the extent necessary in order to express an opinion as to the fair presentation of the financial statements contained in the foregoing documents and to issue reports on compliance and internal controls as required by the Single Audit Act Amendments of 1996.
This Management Report contains information pertinent to the financial and compliance activities of the Judges of the Probate Courts Retirement Fund of Georgia as of and for the year ended June 30, 2004. The particular information provided is enumerated in the Table of Contents.
This report is intended solely for the information and use of management of the State of Georgia and members of the Board and is not intended to be and should not be used by anyone other than these specified parties.
Respectfully submitted,

RWH:jpj

SELECTED FINANCIAL INFORMATION -1-

JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SCHEDULE OF FIDUCIARY NET ASSETS PENSION TRUST FUND JUNE 30, 2004

EXHIBIT "A"

ASSETS
Cash and Cash Equivalents Investments
Bonds and Debentures Investment Account Stocks U.S. Government Securities
Total Assets
LIABILITIES
Payroll Withholdings
NET ASSETS
Held in Trust for Pension Benefits

$

214,189.41

17,281,064.91 4,059,627.44
29,571,130.70 3,147,061.96

$ 54,273,074.42

$

82.02

$ 54,272,992.40

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SCHEDULE OF CHANGES IN FIDUCIARY NET ASSETS PENSION TRUST FUND YEAR ENDED JUNE 30, 2004

EXHIBIT "B"

ADDITIONS
Member Contributions Fines and Bond Forfeitures Marriage License Fees Interest and Other Investment Income
Dividends and Interest Net Appreciation in Fair Value of Investments Net Gain on Sale of Investments Other Miscellaneous
Total Additions DEDUCTIONS
General and Administrative Expenses Benefits Refunds
Total Deductions Changes in Net Assets NET ASSETS - JULY 1

$

160,343.00

502,344.31

161,323.60

1,373,384.80 -1,056,367.11 4,756,505.56

186,745.12 $ 6,084,279.28

$

422,139.86

1,989,729.08

8,521.14

$ 2,420,390.08

$ 3,663,889.20

50,609,103.20

NET ASSETS - JUNE 30

$ 54,272,992.40

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SELECTED FINANCIAL NOTES YEAR ENDED JUNE 30, 2004

EXHIBIT "C"

A. PLAN DESCRIPTION AND CONTRIBUTION INFORMATION

ORGANIZATION AND PURPOSE The Judges of the Probate Courts Retirement Fund of Georgia is a cost-sharing multipleemployer defined benefit pension plan established in 1958 by the General Assembly of Georgia for the purpose of paying retirement benefits to the judges of the Probate Courts of the State of Georgia. The Board of Commissioners of the Retirement Benefit Fund is comprised of seven (7) members and consists of the Governor or his designee, an appointee of the Governor other than the Attorney General, four judges of the probate courts who are members of the Retirement Fund, and one appointee of the Governor who is a member of the Retirement Fund and a retired judge of a probate court. The Judges of the Probate Courts Retirement Fund of Georgia is considered a component unit of the State of Georgia and is included within the State of Georgia reporting entity for financial reporting purposes because of the significance of its legal, operational, and financial relationships with the State of Georgia.

All duly qualified and commissioned judges of the counties of the State of Georgia and any person serving as Secretary-Treasurer of the Board of Commissioners of the Judges of the Probate Courts Retirement Fund of Georgia are eligible to apply for membership. The Retirement fund is funded through a combination of member contributions paid by the affected judges of the probate courts, designated portions of fines and forfeitures for criminal and quasi-criminal cases involving the violation of State of Georgia traffic laws, and designated portion of fees collected for the processing of marriage licenses.

CURRENT MEMBERSHIP The following analysis compares the membership of the Probate Courts Retirement Fund of Georgia at June 30, 2004, to that of the prior year:

June 30, 2004 June 30, 2003

Retirees and Beneficiaries Currently Receiving Benefits and Terminated Members Entitled to but not yet receiving Benefits For Disability For Retirement For Survivorship

3

2

85

90

38

42

126

1M

Number of Active Members Vested Nonvested

26

29

128

128

.1M

15Z

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SELECTED FINANCIAL NOTES YEAR ENDED JUNE 30, 2004

EXHIBIT "C"

PLAN BENEFITS The Judges of the Probate Courts Retirement Fund of Georgia provides retirement as well as death and disability 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 for retirement at sixty (60) years of age and must have served at least four years as a regularly qualified and commissioned probate judge or Secretary-Treasurer of the Retirement Fund.
(B) RETIREMENT BENEFITS: Any member approved for retirement benefits shall be paid a monthly benefit equal to five percent (5%) of his/her average monthly net earnings up to, but not exceeding, a total of twenty years to determine their monthly benefits with the following exception:
Any member who has served for a total of twenty years as a judge of the probate court or employee of the Retirement Fund, or a combination of such service, and who has contributed all dues owed to the Retirement Fund as provided but who is not eligible upon retirement to receive the maximum retirement benefits provided, shall be entitled to continue dues to the Retirement Fund and to continue to receive credit during such a period of time as he/she shall continue to serve as a judge of the probate court or employee of the Retirement Fund beyond twenty years of service. The average monthly net earnings of any such member shall be added to the monthly net earnings of the individual during the twenty-year period of service. The sum of these amounts shall then be divided by 240. and the result of such division shall then be used as the average monthly net earnings upon which retirement benefits shall be calculated. Benefits calculated and paid pursuant to this provision shall not exceed the limitations specified.
(C) OPTIONAL BENEFITS: The monthly benefits referred to above are payable for the lifetime of the member. Members may elect to receive an actuarially reduced benefit in the form of a Joint and Survivor Annuity.
(D) DISABILITY BENEFITS: Any member who becomes totally and permanently disabled after completing four years of creditable service is entitled to receive retirement benefits in the amount that the member would receive if their retirement were effective at the time the member became disabled.
(E) DEATH BENEFITS:
(1) Death before Retirement: In the event of the death of the member, the surviving spouse may elect to withdraw the dues paid into the Retirement Fund by the deceased member plus interest, in which case the spouse shall be deemed to have waived any rights to any benefits; or an optional payment plan may be chosen for which benefits will be paid according to the terms of the Plan.

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SELECTED FINANCIAL NOTES YEAR ENDED JUNE 30, 2004

EXHIBIT "C"

(2) Death after Retirement: The surviving spouse, upon reaching sixty (60) years of age, may elect to receive a benefit equal to fifty percent (50%) of the monthly retirement benefit being paid to the deceased spouse at the time of death. These benefits will be paid for the remainder of the surviving spouse's life.

(F) TERMINATION: In the event of termination. member is entitled to any retirement benefits that may have been earned. However, the member may waive the right to these benefits and receive all dues paid plus interest.

FUNDING POLICY The minimum annual employer contribution requirements are set forth in the Official Code of Georgia Annotated 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. The actuarial valuation as of July 1, 2003, which reflected the proceeds of designated portions of fines and forfeitures for violation of traffic laws and a designated portion of fees collected for processing marriage licenses as the employer contribution, indicated that the minimum employer contribution level was met. Member contributions requirements are set forth in O.C.G.A Section 47-11-40 and are not actuarially determined.

A description of contribution requirements is as follows:

(A) MEMBERS CONTIBUTIONS: Members must contribute $105.00 per month as dues; provided, however, that the requirement for such dues shall cease after the member has paid such dues for a period of 20 years.

(B) PROBATE COURT CONTRIBUTIONS: For each criminal and quasi-criminal case involving the violation of State of Georgia traffic laws, a sum based upon the scale set forth below is collected by the presiding judge and remitted to the SecretaryTreasurer of the Retirement Fund:

For fines or bonds forfeitures in excess of $4.00, but not more than $25.00

$1.00

For fines or bond forfeitures in excess of $25.00, but not more than $50.00

$1.50

For fines or bond forfeitures in excess of $50.00, but not more than $100.00

$ 2.00

For fines or bond forfeitures in excess of $100.00

$2.50

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SELECTED FINANCIAL NOTES YEAR ENDED JUNE 30, 2004

EXHIBIT "C"

Actual contributions for the year ended June 30. 2004, were as follows:

Member Contributions Fines and Forfeitures Marriage Licenses Fees

$

160,343.00

502,344.31

161,323.60

$

824,010.91

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS Cash and Cash Equivalents consist of demand deposits with banks.
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 Retirement 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. No investment in any one organization, except the U.S. Government, represents 5% or more of the net assets available for pension benefits. Approximately 6% of the net assets available for benefits are invested in U.S government securities.
The Official Code of Georgia Annotated (O.C.G.A.) Section 47-17-23 states that the Board of Commissioners of the Judges of the Probate Courts Retirement Fund of Georgia shall have full power to invest and reinvest funds, subject to all terms, conditions, limitations, and restrictions imposed by the "Public Retirement Systems Investment Authority Law'' of Georgia. In addition, the Board of Commissioners is restricted to invest no more than 55% of the assets of the Retirement Fund in equities. Statutory provisions governing eligible investments are enumerated in the O.C.G.A. Section 47-20-83 as follows:
(1) Corporations or obligations of corporations organized under the laws of Georgia or any other state or under the laws of Canada, but only if the corporation has a market capitalization equivalent to $100 million; provided, however, that except as provided in O.C.G.A. Section 47-20-84, no fund shall invest in corporations or in obligations of corporations organized in a country other than the United States or Canada; provided, further, that such obligation shall be listed as investment grade by a nationally recognized rating agency;

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SELECTED FINANCIAL NOTES YEAR ENDED JUNE 30, 2004

EXHIBIT "C"

(2) Repurchase and reverse repurchase agreements for direct obligations of the United States government and for obligations unconditionally guaranteed by agencies of the United States government and for investments eligible under paragraph (1) of this Code section;
(3) Cash assets or deposits in checking or savings accounts under certificates of deposit or in other form in banks and trust companies and in savings accounts, certificates of deposit, or similar certificates or evidences of deposits in savings and loan associations and building and loan associations which have qualified for the insurance protection afforded by the Federal Deposit Insurance Corporation;
(4) Bonds, notes, warrants, and other evidence of indebtedness which are direct obligations of the government of the United States of America or for which the full faith and credit of the government of the United States of America is pledged for the payment of principal and interest;
(5) Loans guaranteed as to principle and interest by the government of the United States of America, or by any agency or instrumentality of the government of the United States of America, to the extent of such guaranty;
(6) Taxable bonds, notes, warrants, and other securities not in default which are the direct obligations of any state of the United States or of the District of Columbia, or of the government of Canada or any province of Canada, or for which the full faith and credit of such state, district, government, or province has been pledged for the payment of principal and interest;
(7) Bonds, notes, warrants, and other securities not in default which are the direct obligations of the government of any foreign country which the International Monetary Fund lists as an industrialized country and for which the full faith and credit of such government has been pledged for the payment of principal and interest, provided such securities are listed as investment grade by a nationally recognized rating agency;
(8) Bonds, debentures, or other securities issued or insured or guaranteed by any agency, authority, unit, or corporate body created by the government of the United States of America whether or not such obligations are guaranteed by the United States;
(9) Collateralized mortgage obligations that are listed as investment grade by a nationally recognized rating agency;
(10) Obligations issued, assumed, or guaranteed by the International Bank for Reconstruction and Development or the International Financial Corporation;

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SELECTED FINANCIAL NOTES YEAR ENDED JUNE 30, 2004

EXHIBIT "C"

(11) In addition to those investments eligible under paragraph (1) of this Code section, bonds, debentures, notes, and other evidences of indebtedness issued, assumed, or guaranteed by any solvent institution existing under the laws of the United States of America or of Canada, or any state or province thereof, which are not in default as to principal or interest and which are secured by collateral worth at least 50 percent more than the par value of the entire issue of such obligations, but only if not more than onethird of the total value of the required collateral consists of common stocks;
(12) In addition to those investments eligible under paragraph (1) of this Code section, secured and unsecured obligations of issuers described in paragraph (11) of this Code section other than the obligations described in paragraph (11) of this Code section, bearing interest at a fixed rate, with mandatory principal and interest due at specified times, if the net earnings of the issuing, assuming, or guaranteeing institution available for its fixed charges for a period of five fiscal years next preceding date of acquisition by the fund have averaged per year not less than one and one-half times its average annual fixed charges applicable to such period and if during either of the last two years of the period of such net earnings have been not less than one and one-half times its fixed charges for the year; provided, however, that any such obligation shall be listed as investment grade by a nationally recognized rating agency;
(13) In addition to those investments eligible under paragraph (1) of this Code section, equipment trust obligations or certificates adequately secured and evidencing an interest in transportation equipment, wholly or in part within the United States of America, and the right to receive determined portions of rental, purchase, or other fixed obligatory payments for the use or purchase of the transportation equipment;
(14) Loans that are secured by pledge or securities eligible for investment under this article;
(15) Purchase money mortgages or like securities received upon the sale or exchange of real property acquired;
(16) In addition to those investments eligible under paragraph (1) of this Code section, a mortgage or a mortgage participation, pass-through, conventional pass-through, trust certificate, or other similar security which represents an undivided, beneficial interest in a pool of loans secured by first mortgages, deeds of trust, or deeds to secure debt upon fee simple, unencumbered, improved, or income-producing real property located in the United States or Canada, which is improved with a residential building or condominium unit or buildings designed for occupancy by not more than four families, including leasehold estates in such real estate if such first mortgages, deeds of trust, or deeds to secure debt are fully guaranteed or insured by the Federal Housing Administration, the United States

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SELECTED FINANCIAL NOTES YEAR ENDED JUNE 30, 2004

EXHIBIT "C"

(16) Department of Veterans Affairs. the Farmers Home Administration, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, the Federal National Mortgage Association, or any similar governmental entity or instrumentality;
(17) Land and buildings on such land used or acquired for use as a fund's office for the convenient transaction of its own business; provided, however, that portions of such buildings not used for its own business may be rented by the fund to others; provided, further, that the amount invested by a fund in office property shall not exceed 10 percent of the retirement system assets;
(18) Real property acquired in satisfaction in whole or in part of loans, mortgages, liens, judgments, decrees, or debts previously owing to the fund in the course of its business;
(19) Real property acquired in part payment of the consideration on the sale of other real property owned by the fund if such transaction effects a net reduction in the fund's investment in real estate;
(20) Real property acquired by gift or devise, or through merger or consolidation with another fund; and
(21) Additional real property and equipment incident to real property if necessary or convenient for the enhancement of the marketability or sale value of real property previously acquired or held by the fund under paragraph (18), (19), and (20) of this Code section.

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SUPPLEMENTARY INFORMATION
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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SCHEDULE "1" RECONCILIATION OF PER DIEM AND FEES YEAR ENDED JUNE 30, 2004

TYPE PAYMENT FEE AMOUNT EXPENSE AMOUNT

Totals per Annual Supplement

$ 383,694.31 $

0.00 $

Adjustments State Street Bank

Other Fees

296.73

TOTAL 383,694.31
296.73

$ 383,991.04 $

0.00 $ _ _ _38_3~,9_9_1_.0_4_

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SCHEDULE "2" SCHEDULE OF FUNDING PROGRESS YEAR ENDED JUNE 30, 2004

ACTUARIAL VALUATION
DATE

ACTUARIAL VALUE OF
ASSETS (a)

ACTUARIAL ACCRUED LIABILITY (AAL) -ENTRYAGE
NORMAL (b)

UNFUNDED AAL
(UAAL) (b-a)

07/01/97 $ 35,171,185.00 $ 25,277,876.00 $ -9,893,309.00

07/01/99 $ 43,929,354.00 $ 36,768,843.00 $ -7, 160,511.00

07/01/01

$ 53,036,654.00 $ 42,720,679.00 $ -10,315,975.00

07/01/03 $ 57,181,423.00 $ 47,261,377.00 $ -9,920,046.00

FUNDED RATIO (alb)

COVERED PAYROLL
(c)

UAALASA PERCENTAGE OF COVERED
PAYROLL ((b-a)/c)

139.1%

n/a

n/a

119.5%

n/a

n/a

124.1%

n/a

n/a

121.0%

n/a

n/a

Information prior to July 1, 1997, is not available.

The actuarial accrued liability was calculated based on a change in the actuarial cost method. Projected Unit Credit cost method was used in 1997; Entry Age Normal cost method was used thereafter.

The information presented in this schedule is based on the actuarial study prepared as of July 1, 2003. The actuarial value of assets is equal to 113% of market value of assets (excluding fixed assets).

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JUDGES OF THE PROBATE COURTS RETIREMENT FUND OF GEORGIA SCHEDULE "3" SCHEDULE OF EMPLOYER CONTRIBUTIONS YEAR ENDED JUNE 30, 2004

FISCAL
YEAR
1998 1999 2000 2001 2003

ANNUAL
REQUIRED CONTRIBUTION

$

534,700.00

$

570,791.00

$

415,539.00

$

238,627.00

$

402,389.00

PERCENTAGE CONTRIBUTED
107% 105% 145% 252% 189%

Information prior to July 1, 1997, is not available.

The information presented in this schedule is based on the actuarial study prepared as of July 1, 2003. Additional information of this latest actuarial valuation follows:

Valuation Date
Actuarial Cost Method
Amortization Method
Remaining Amortization Period
Asset Valuation Method
Actuarial Assumptions: Investment Rate of Return Projected Salary Increases Includes Inflation at Cost-of-Living Adjustments

July 1, 2003 Entry Age Normal Level dollar, open 40 years
5-year smoothed market
7% Not Applicable None 2%

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