Oklahoma Police Pension and Retirement Plan financial statements

              Oklahoma Police Pension and
Retirement Plan
Administered by
Oklahoma Police Pension and
Retirement System
Financial Statements
June 30, 2011 and 2010
(With Independent Auditors’ Report Thereon)
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
FINANCIAL STATEMENTS
Table of Contents
Page
Independent Auditors’ Report ....................................................................................................... 1
Management’s Discussion and Analysis ...................................................................................... I–1
Financial Statements:
Statements of Plan Net Assets ............................................................................................... 3
Statements of Changes in Plan Net Assets ............................................................................ 4
Notes to Financial Statements ............................................................................................... 5
Supplementary Information Required by
Governmental Accounting Standards Board Statements No. 25 and 50:
Schedule of Funding Progress (Exhibit I) ............................................................................. 44
Schedule of Contributions from the Employer and
Other Contributing Entities (Exhibit II) .............................................................................. 45
Notes to Required Supplementary Information (Exhibit III) ................................................ 46
Report on Internal Control Over Financial Reporting and
on Compliance and Other Matters Based on
an Audit of Financial Statements Performed in
Accordance with Government Auditing Standards ..................................................................... 47
- 1 -
1421 East 45th Street • Shawnee, OK 74804
P: 405.878.7300 • www.finley-cook.com • F: 405.395.3300
INDEPENDENT AUDITORS’ REPORT
To the Board of Trustees of
the Oklahoma Police Pension and Retirement System
We have audited the accompanying statements of plan net assets of the Oklahoma Police Pension and
Retirement Plan (the “Plan”), administered by the Oklahoma Police Pension and Retirement System,
which is a part of the State of Oklahoma financial reporting entity, as of June 30, 2011 and 2010, and the
related statements of changes in plan net assets for the years then ended. These financial statements are
the responsibility of the Plan’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States
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 examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net
assets of the Plan as of June 30, 2011 and 2010, and the changes in the net assets of the Plan for the
years then ended in conformity with accounting principles generally accepted in the United States.
In accordance with Government Auditing Standards, we have also issued a report dated
September 19, 2011, on our consideration of the Plan’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 our audit.
(Continued)
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INDEPENDENT AUDITORS’ REPORT, CONTINUED
Accounting principles generally accepted in the United States require that the management’s discussion
and analysis on pages I–1 through I–4 and the schedule of funding progress and the schedule of
contributions from the employer and other contributing entities on pages 44–46 be presented to
supplement the basic financial statements. Such information, although not a part of the basic financial
statements, is required by the Governmental Accounting Standards Board, who considers it to be an
essential part of financial reporting for placing the basic financial statements in an appropriate
operational, economic, or historical context. We have applied certain limited procedures to the required
supplementary information in accordance with auditing standards generally accepted in the United
States, which consisted of inquiries of management about the methods of preparing the information and
comparing the information for consistency with management’s responses to our inquiries, the basic
financial statements, and other knowledge we obtained during our audit of the basic financial statements.
We do not express an opinion or provide any assurance on the information because the limited
procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Shawnee, Oklahoma
September 19, 2011
MANAGEMENT’S DISCUSSION AND ANALYSIS
I–1
As management of the Oklahoma Police Pension and Retirement Plan administered by the Oklahoma
Police Pension and Retirement System (collectively referred to as the “System”), we offer readers of the
System’s financial statements this narrative overview and analysis of the financial statements of the
System for the fiscal years ended June 30, 2011 and 2010. Please read it in conjunction with the
System’s financial statements which begin on page 3.
2011 2010
• Net assets of the System $ 1,800,742 1,548,827
• Contributions:
Cities 31,846 32,240
Plan members 19,489 19,626
Insurance premium tax 24,645 22,292
• Net investment income 282,305 163,058
• Benefits paid, including refunds and
deferred option benefits 104,658 108,147
• Change in net assets 251,915 127,361
Financial Highlights
June 30,
(Amounts in Thousands)
DISCUSSION OF THE BASIC FINANCIAL STATEMENTS
This following discussion and analysis is intended to serve as an introduction to the System’s basic
financial statements. The System’s basic financial statements are comprised of 1) the statement of plan
net assets, 2) the statement of changes in plan net assets, and 3) notes to basic financial statements. This
report also contains required supplementary information and other supplemental schedules. The System
is a component unit of the State of Oklahoma and together with other similar funds comprise the
fiduciary pension trust funds of the State of Oklahoma. The financial statements are presented using the
economic measurement focus and the accrual basis of accounting. The System’s statements offer short-term
and long-term financial information about the activities and operations of the System. These
statements are presented in a manner similar to those of a private business.
The statements of plan net assets represent the fair value of the System’s assets as of the end of the fiscal
year. The difference between assets and liabilities, called “net assets,” represents the value of assets held
in trust for future benefit payments. Over time, increases and decreases in the System’s net assets can
serve as an indicator of whether the financial position of the System is increase or decreasing.
The statements of changes in plan net assets are presented in order to show the change in net assets
during the year. The activity primarily consists of contributions to the System, unrealized and realized
gains and losses on investments, investment income, benefits paid, and investment and administrative
expenses.
MANAGEMENT’S DISCUSSION AND ANALYSIS, CONTINUED
I–2
CONDENSED FINANCIAL INFORMATION COMPARING
THE CURRENT YEAR TO THE PRIOR YEAR
Net Assets: The following table summarizes the net assets as of June 30:
2011 2010
% Increase
(Decrease)
Cash and cash equivalents $ 33,516 22,931 46.2%
Receivables 10,867 10,132 7.3%
Investments, at fair value 1,771,589 1,526,032 16.1%
Securities lending collateral 44,578 48,845 (8.7)%
Capital assets 913 1,014 (10.0)%
Total assets 1,861,463 1,608,954 15.7%
Liabilities 60,721 60,127 1.0%
Net assets $ 1,800,742 1,548,827 16.3%
(Amounts in Thousands)
Investments are made in accordance with the investment policy approved by the Oklahoma Police
Pension and Retirement System Board. A more detailed description of the types of investments held
and the investment policy is presented in Note 2 to the financial statements.
Operating Income: The following table summarizes the changes in net assets between fiscal years
2011 and 2010:
2011 2010
% Increase
(Decrease)
Additions
Contributions $ 75,980 74,158 2.5%
Net investment income 282,305 163,058 73.1%
Total additions 358,285 237,216 51.0%
Deductions
Benefits paid, including refunds 88,960 84,219 5.6%
Deferred option benefits 15,698 23,928 (34.4)%
Administrative expenses 1,712 1,708 0.2%
Total deductions 106,370 109,855 (3.2)%
Changes in net assets 251,915 127,361 97.8%
Net assets, beginning of year 1,548,827 1,421,466 9.0%
Net assets, end of year $ 1,800,742 1,548,827 16.3%
(Amounts in Thousands)
MANAGEMENT’S DISCUSSION AND ANALYSIS, CONTINUED
I–3
ANALYSIS OF THE OVERALL FINANCIAL POSITION AND
RESULTS OF OPERATIONS
Funding for the System is derived primarily from contributions to the System from both the cities and
the police officers. In total, the contributions had increased during fiscal year 2011 compared to fiscal
year 2010, due primarily to the fact that the amount of insurance premium tax increased $2,354,091, or
10.5%. The System received 14% of total insurance premium tax collected for the years ended June 30,
2011 and 2010.
The System’s net yield on average assets was approximately 19% for the fiscal year ended
June 30, 2011, as a result of the market recovering during this fiscal year. As the System accounts for
its investments at fair value, increases and declines in the prices of stocks and bonds have a direct effect
and impact on the net assets and operating results of the System. The System’s net yield on its average
assets for the years ended June 30 and the yield for the S&P 500 during the same period were as follows:
2011 2010
System 19% 12%
S&P 500 31% 14%
Total benefit payments, including refunds and deferred option benefits, decreased during the year by
approximately 3%. This was primarily due to a decrease in the number of individuals retiring in 2011
and their election to participate in the “Back” DROP.
Administrative expenses are composed primarily of payroll and related expenses for the employees of
the System, legal fees, investment consulting fees, data processing fees, and medical and travel costs.
Total administrative expenses for the year ended June 30, 2011, increased approximately 0.2% over the
year ended June 30, 2010. The total administrative expenses held were consistent from fiscal year 2010
to 2011.
The System has no debt or infrastructure assets.
DESCRIPTION OF CURRENTLY KNOWN FACTS, DECISIONS, OR CONDITIONS
THAT ARE EXPECTED TO HAVE A SIGNIFICANT EFFECT ON
THE FINANCIAL POSITION OR RESULTS OF OPERATIONS
While the System is directly impacted by the overall stock market changes, investments are made based
on the expected long-term performance and best interest of the members of the System. With over
$1.8 billion of assets and a wide range of diversity of investments, the System has the financial
resources to maintain its current investment strategies while continuing to review for other investment
options to benefit its members.
Presently, the System receives 14% of the total taxes collected on insurance premiums. The System
received insurance premium taxes of approximately $25 million and $22 million in the years ended
June 30, 2011 and 2010, respectively.
MANAGEMENT’S DISCUSSION AND ANALYSIS, CONTINUED
I–4
REQUESTS FOR INFORMATION
This financial report is designed to provide a general overview of the System’s finances for all those
with an interest. Questions concerning any of the information provided in this report or requests for
additional financial information should be addressed to the Executive Director or Comptroller,
Oklahoma Police Pension and Retirement System, 1001 N.W. 63rd Street, Suite 305, Oklahoma City,
OK 73116-7335.
See Independent Auditors’ Report.
See accompanying notes to financial statements.
- 3 -
June 30, 2011 2010
Assets
Cash and cash equivalents $ 3 3,516 2 2,931
Receivables:
Interest and dividends receivable 2 ,973 2 ,905
Contributions receivable from cities 1 ,472 1 ,440
Contributions receivable from participants 8 93 8 70
Insurance premium tax receivable 5 ,526 4 ,917
Other 3 -
Total receivables 1 0,867 1 0,132
Investments, at fair value:
U.S. government securities 1 4,121 2 8,338
Domestic corporate bonds 2 29,068 2 00,803
International corporate bonds 1 01,435 8 4,656
Domestic stocks 5 33,850 4 18,316
International stocks 1 85,952 1 45,685
Equity—real estate investment trusts 5 ,231 3 ,469
Alternative investments 6 56,715 6 06,918
Real estate fund 4 1,517 3 4,372
Real estate—Columbus Square 3 ,700 3 ,475
Total investments, at fair value 1 ,771,589 1 ,526,032
Securities lending collateral 4 4,578 4 8,845
Capital assets 9 13 1 ,014
Total assets 1 ,861,463 1 ,608,954
Liabilities
Net payable to brokers 3 ,753 2 01
Accounts payable 1 ,672 1 ,167
Deferred option benefits payable 1 0,718 9 ,914
Securities lending collateral 4 4,578 4 8,845
Total liabilities 6 0,721 6 0,127
Net assets held in trust for pension benefits
(Schedule of Funding Progress is presented as
Exhibit I) $ 1 ,800,742 1 ,548,827
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
STATEMENTS OF PLAN NET ASSETS
(Amounts in Thousands)
See Independent Auditors’ Report.
See accompanying notes to financial statements.
- 4 -
Years Ended June 30, 2011 2010
Additions
Contributions:
Cities $ 3 1,846 3 2,240
Plan members 1 9,489 1 9,626
Insurance premium tax 2 4,645 2 2,292
Total contributions 7 5,980 7 4,158
Investment income:
From investing activities:
Net appreciation in fair value of investments 2 76,186 1 57,918
Interest 7 ,365 7 ,451
Dividends 9 ,662 8 ,256
Other 7 32 2 33
Total investment income 2 93,945 1 73,858
Less investment expense (11,700) (10,907)
Income from investing activities 2 82,245 1 62,951
From securities lending activities:
Securities lending income 7 7 1 34
Securities lending expenses:
Borrower rebates, net 7 1 8
Management fees (24) (45)
Income from securities lending activities 6 0 1 07
Net investment income 2 82,305 1 63,058
Total additions 3 58,285 2 37,216
Deductions
Benefits paid 8 6,843 8 2,799
Deferred option benefits 1 5,698 2 3,928
Refunds of contributions 2 ,117 1 ,420
Administrative expenses 1 ,712 1 ,708
Total deductions 1 06,370 1 09,855
Changes in net assets 2 51,915 1 27,361
Net assets held in trust for pension benefits:
Beginning of year 1 ,548,827 1 ,421,466
End of year $ 1,800,742 1,548,827
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
STATEMENTS OF CHANGES IN PLAN NET ASSETS
(Amounts in Thousands)
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS
June 30, 2011 and 2010
See Independent Auditors’ Report.
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(1) NATURE OF OPERATIONS
The Oklahoma Police Pension and Retirement System (the “System”) was established by
legislative act and became effective on January 1, 1981. The System is the administrator of a
multiple-employer, cost-sharing defined benefit pension plan that provides participants with
retirement, death, and disability benefits and a deferred option plan (the “Deferred Option”), both
established by the State of Oklahoma. These plans are considered a single plan for financial
reporting purposes. The System is part of the State of Oklahoma financial reporting entity and is
included in the State’s financial reports as a pension trust fund. The System covers substantially
all police officers employed by the 131 participating municipalities and state agencies within the
state of Oklahoma.
The System is a part of the State of Oklahoma financial reporting entity, which is combined with
other similar funds (multiple-employer, cost-sharing) to comprise the fiduciary-pension trust
funds of the State of Oklahoma.
The Oklahoma Police Pension and Retirement Board of Trustees (the “Board”) is responsible for
the operation, administration, and management of the System. The Board also determines the
general investment policy of the System’s assets.
The System’s participants at June 30 consisted of:
2011 2010
Retirees and beneficiaries currently
receiving benefits 3,060 2,993
Vested members with deferred benefits 124 111
Deferred Option plan members 50 50
3,234 3,154
Active plan members:
Vested 2,411 2,350
Nonvested 2,540 2,576
Total active plan members 4,951 4,926
Total members 8,185 8,080
Number of participating municipalities and
state agencies 131 131
The System administers the Oklahoma Police Pension and Retirement Plan (the “Plan”). For
report purposes, the System is deemed to be the administrator of the Plan.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
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(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies followed by the Plan.
Basis of Accounting
The financial statements are prepared using the accrual basis of accounting, under which
expenses are recorded when the liability is incurred, revenues are recorded in the accounting
period in which they are earned and become measurable, and investment purchases and sales are
recorded as of their trade date. The financial statements are in conformity with provisions of
Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures
for Defined Contribution Plans, issued by the Governmental Accounting Standards Board
(GASB 25) and Statement No. 50, Pension Disclosures (GASB 50).
The Plan is administered by the System, a part of the State of Oklahoma financial reporting
entity, which together with other similar pension and retirement funds comprise the fiduciary-pension
trust funds of the State of Oklahoma. Administrative expenses are paid with funds
provided by operations of the Plan.
Recent Accounting Pronouncements
In December 2010, GASB issued Statement No. 62, Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements
(GASB 62). The objective of GASB 62 is to incorporate into the GASB’s authoritative literature
certain accounting and financial reporting guidance that is included in the following
pronouncements issued on or before November 30, 1989, which does not conflict with or
contradict GASB pronouncements:
1. Financial Accounting Standards Board (FASB) Statements and Interpretations
2. Accounting Principles Board Opinions
3. Accounting Research Bulletins of the American Institute of Certified Public
Accountants’ (AICPA) Committee on Accounting Procedures.
The requirements in GASB 62 will improve financial reporting by contributing GASB’s efforts
to codify all sources of generally accepted accounting principles for state and local governments
so that they derive from a single source. GASB 62 is effective for financial statements for
periods beginning after December 15, 2011, with earlier application encouraged. The provisions
of GASB 62 are required to be applied retroactively for all periods presented.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 7 -
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Use of Estimates
The preparation of the Plan’s financial statements in conformity with accounting principles
generally accepted in the United States requires management of the Plan to make significant
estimates and assumptions that affect the reported amounts of net assets held in trust for pension
benefits at the date of the financial statements and the actuarial information in Exhibits I, II,
and III included in the required supplementary information as of the benefit information date, the
changes in the Plan’s net assets during the reporting period, and, when applicable, disclosures of
contingent assets and liabilities at the date of the financial statements. Actual results could differ
from those estimates.
Risks and Uncertainties
Contributions to the Plan and the actuarial information in Exhibits I, II, and III included in the
required supplementary information are reported based on certain assumptions pertaining to
interest rates, inflation rates, and employee compensation and demographics. Due to the
changing nature of these assumptions, it is at least reasonably possible that changes in these
assumptions may occur in the near term and, due to the uncertainties inherent in setting
assumptions, that the effect of such changes could be material to the financial statements.
Date of Review of Subsequent Events
The Plan has evaluated subsequent events through September 19, 2011, the date which the
financial statements were available to be issued.
Investments
Management of the Plan is authorized to invest in eligible investments as approved by the Board
as set forth in its investment policy.
Method Used to Value Investments—Plan investments are reported at fair value. Short-term
investments include an investment fund composed of an investment in units of a commingled
trust fund of the Plan’s custodial agent (which is valued at cost, which approximates fair value),
commercial paper, treasury bills, and U.S. government agency securities. Debt and equity
securities are reported at fair value, as determined by the Plan’s custodial agent, using pricing
services or prices quoted by independent brokers based on the latest reported sales prices at
current exchange rates for securities traded on national or international exchanges. The fair
value of the pro rata share of units owned by the Plan in equity index and commingled trust
funds is determined by the respective fund trustee based on quoted sales prices of the underlying
securities. The fair value of the real estate is determined from independent appraisals.
Investments which do not have an established market are reported at estimated fair value.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
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(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Investments, Continued
Net investment income (loss) includes net appreciation/(depreciation) in the fair value of
investments, interest income, dividend income, investment income from real estate, securities
lending income and expenses, and investment expenses, which includes investment management
and custodial fees and all other significant investment related costs. Foreign currency translation
gains and losses are reflected in the net appreciation (depreciation) in the fair value of
investments. Investment income from real estate includes the Plan’s share of income from
operations, net appreciation in the fair value of the underlying real estate properties, and the
Plan’s real estate investment management fees. The fair value of the limited partnerships is
determined by managers of the partnerships based on the values of the underlying assets.
The Plan’s international investment managers enter into forward foreign exchange contracts to
protect against fluctuation in exchange rates between the trade date and the settlement date of
foreign investment transactions. The gains and losses on these contracts are included in income
in the period in which the exchange rates change.
The Plan may invest in various traditional financial instruments that fall under the broad
definition of derivatives. The Plan’s derivatives may include collateralized mortgage
obligations, convertible stocks and bonds, and variable rate instruments. These investments do
not increase investment risk beyond allowable limits specified in the Plan’s investment policy.
The Plan’s investment policy provides for investments in any combinations of stocks, bonds,
fixed-income securities, and other investment securities, along with investments in commingled,
mutual, and index funds. Investment securities and investment securities underlying
commingled or mutual fund investments are exposed to various risks, such as interest rate and
market and credit risks. Due to the risks associated with certain investment securities, it is at
least reasonably possible that changes in the values of investment securities may occur in the
near term, and such changes could materially affect the amounts reported in the statements of
plan net assets.
The investment policy limits the concentration of each portfolio manager. Except as noted
below, no single investment exceeds 5% of the Plan’s net assets. At June 30, 2011 and 2010, the
Plan did have more than 5% invested in U.S. government obligations; however, these obligations
are backed by the full faith and credit of the United States.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 9 -
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Investments, Continued
The Plan invests in domestic equity index funds, domestic equity commingled trust funds, and
international equity funds. The Plan shares the risk of loss in these funds with other participants
in proportion to its respective investment. Because the Plan does not own any specific
identifiable investment securities of these funds, the market risk associated with any derivative
investments held in these funds is not apparent. The degree of market risk depends on the
underlying portfolios of the funds, which were selected by the Plan in accordance with its
investment policy guidelines, including risk assessment. The international funds invest primarily
in equity securities of entities outside the United States and may enter into forward contracts to
purchase or sell securities at specified dates in the future at a guaranteed price in a foreign
currency to protect against fluctuations in exchange rates of foreign currency.
The following tables present the individual investments exceeding the 5%(1) threshold at June 30:
Classification of
Investment
Name of
Investment
Shares
Held Cost
Fair
Value
Alternative investments Newport Mesa, LLC 159,104,517 $ 105,000 159,081
Domestic stocks Mellon Large Cap
Stock Index Fund 378,706 274,634 363,297
Alternative investments Grosvenor Long/Short
Equity Fund, LP 173,437,283 132,000 173,437
International stocks Mondrian International
Equity 3,939,387 56,861 97,787
2011
(Amounts in Thousands)
_________
(1) While the individual investment may exceed 5% of the Plan’s net assets, each investment is
comprised of numerous individual securities. As such, no individual security exceeds the 5%
threshold.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 10 -
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Investments, Continued
Classification of
Investment
Name of
Investment
Shares
Held Cost
Fair
Value
Alternative investments Newport Mesa, LLC 105,000,000 $ 105,000 148,463
Domestic stocks Mellon Large Cap
Stock Index Fund 401,804 291,385 292,059
Alternative investments Grosvenor Long/Short
Equity Fund, LP 156,508,708 132,000 156,509
2010
(Amounts in Thousands)
_________
(1) While the individual investment may exceed 5% of the Plan’s net assets, each investment is
comprised of numerous individual securities. As such, no individual security exceeds the 5%
threshold.
Repurchase/Reverse Repurchase Agreement
The Plan has a master repurchase/reverse repurchase agreement. Under the agreement, the Plan
may enter into a purchase/sale of a security with a simultaneous agreement to resell/repurchase
the security at a specified future date and price. The Plan did not enter into any transactions
under this agreement during fiscal year 2011 or 2010.
Capital Assets
Capital assets, which consist of internally generated software, are stated at cost less accumulated
depreciation. Depreciation is calculated using the straight-line method over the estimated useful
life of the related asset (5 years). Depreciation of the new software began in fiscal year 2011 and
amounted to approximately $101,000.
Income Taxes
The Plan is exempt from federal and state income taxes.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 11 -
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Plan Termination
In the event the Plan terminates, the Oklahoma Statutes contain no provision for the order of
distribution of net assets of the Plan. Plan termination would take an act of the Oklahoma
Legislature, at which time the order of distribution of net assets would be addressed.
Administrative Items
Operating Leases
The Plan had an operating lease which ended June 30, 2011. The lease has been renewed for the
period July 1, 2011, through June 30, 2012. Total lease expense was approximately $90,000 and
$78,000 for 2011 and 2010, respectively.
Compensated Absences
Employees of the System earn annual vacation leave at the rate of 10 hours per month for up to
5 years of service, 12 hours per month for service of 5 to 10 years, 13.3 hours per month for
service of 10 to 20 years, and 16.7 hours per month for over 20 years of service. Unused annual
leave may be accumulated to a maximum of 480 hours. All accrued leave is payable upon
termination, resignation, retirement, or death. As of June 30, 2011 and 2010, approximately
$117,000 and $113,000, respectively, was included in accounts payable as the accrual for
compensated absences.
The changes in the accrual for compensated absences for the years ended June 30 were as
follows:
2011 2010
Balance at beginning of year $ 112,740 112,325
Additions and transfers 56,953 43,411
Amount used ( 53,109) ( 42,996)
Balance at end of year $ 116,584 112,740
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 12 -
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Administrative Items, Continued
Retirement Expense
The employees of the System are eligible to participate in the Oklahoma Public Employees
Retirement Plan, which is administered by the Oklahoma Public Employees Retirement System
(OPERS). OPERS is a multiple-employer, cost-sharing public retirement defined benefit
pension plan. OPERS provides retirement, disability, and death benefits to its plan members and
beneficiaries. OPERS issues a publicly available financial report which includes financial
statements and required supplementary information for OPERS. That report may be obtained by
writing to the Oklahoma Public Employees Retirement System, 5801 N. Broadway Extension,
Suite 400, Oklahoma City, OK 73118.
Employees of the System are required to contribute 3.5% of their annual covered salary. The
System is required to contribute at an actuarially determined rate, which was 15.5% of annual
covered payroll as of June 30, 2011 and 2010. During 2011, 2010, and 2009, a total of $127,493
and $121,050, and $122,449, respectively, was paid to OPERS. The System’s and employees’
portions of those amounts were as follows:
2011 2010 2009
System portion $ 103,855 99,784 97,319
Employee portion 23,638 21,266 25,130
$ 127,493 121,050 122,449
Risk Management
The Risk Management Division of the Department of Central Services (the “Division”) is
empowered by the authority of Title 74 O.S. Supp. 1993, Section 85.34 et seq. The Division is
responsible for the acquisition and administration of all insurance purchased by the State or
administration of any self-insurance plans and programs adopted for use by the State for certain
organizations and bodies outside of state government, at the sole expense of such organizations
and bodies.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 13 -
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Administrative Items, Continued
Risk Management, Continued
The Division is authorized to settle claims of the State and shall govern the dispensation and/or
settlement of claims against a political subdivision. In no event shall self-insurance coverage
provided by the State, an agency, or other covered entity exceed the limitations on the maximum
dollar amount of liability specified by the Oklahoma Government Tort Claims Act, as provided
by Title 51 O.S. Supp. 1988, Section 154. The Division oversees the collection of liability claims
owed to the State incurred as the result of a loss through the wrongful or negligent act of a
private person or other entity.
The Division is also charged with the responsibility to immediately notify the attorney general of
any claims against the State presented to the Division. The Division purchases insurance policies
through third-party insurance carriers that ultimately inherit the risk of loss. The Division
annually assesses each State agency, including the System, their pro rata share of the premiums
purchased. The System has no obligations to any claims submitted against the System.
Reclassification of Prior Year Amounts
Certain amounts for 2010 have been reclassified to make them comparable with the 2011
presentation.
(3) DESCRIPTION OF THE PLAN
The following brief description of the Plan is provided for general information purposes only.
Participants should refer to the Oklahoma Statutes for more complete information.
General
The Plan is a multiple-employer, cost-sharing defined benefit pension plan covering members
who have actively participated in being a police officer for an Oklahoma municipality or state
agency which is a member of the Plan.
Contributions
The contribution requirements of the Plan are at an established rate determined by Oklahoma
statute and are not based on actuarial calculations.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 14 -
(3) DESCRIPTION OF THE PLAN, CONTINUED
Contributions, Continued
An eligible municipality may join the Plan on the first day of any month. Upon approval by the
Board, its membership is irrevocable. All persons employed as police officers are required to
participate in the Plan upon initial employment with the police department of the participating
municipality. The Oklahoma Legislature has authority to establish and amend contribution
amounts. Until July 1, 1991, each municipality contributed to the System 10% of the actual base
salary of each participant employed by the municipality. Beginning July 1, 1991, municipality
contributions increased by 1/2% per year and continued this increase until July 1, 1996, when the
contribution level reached 13%, which it remains at currently. Each participant of the Plan
contributes 8% of their actual paid base salary. Additional funds are provided to the Plan by the
State of Oklahoma through an allocation of the tax on premiums collected by insurance
companies operating in Oklahoma and by the net investment income generated on assets held by
the Plan. The Plan is responsible for paying administrative costs. Administrative costs of the
Plan are paid by using the earnings from the invested assets of the Plan.
Funded Status and Funding Progress
2011
As of July 1, 2011, the most recent actuarial valuation date, the Plan was 93% funded. The
actuarial accrued liability for benefits was $2.0 billion, and the actuarial value of assets was
$1.8 billion, resulting in an unfunded actuarial accrued liability (UAAL) of $137 million. The
covered payroll (annual payroll of active employees covered by the Plan) was $258 million, and
the ratio of UAAL to covered payroll was 53.3%.
2010
As of July 1, 2010, the most recent actuarial valuation date, the Plan was 74.9% funded. The
actuarial accrued liability for benefits was $2.3 billion, and the actuarial value of assets was
$1.8 billion, resulting in an unfunded actuarial accrued liability (UAAL) of $587 million. The
covered payroll (annual payroll of active employees covered by the Plan) was $250 million, and
the ratio of UAAL to covered payroll was 235.3%.
The schedule of funding progress, presented as required supplementary information following
the notes to the financial statements, presents multiyear trend information about whether the
actuarial value of plan assets is increasing or decreasing over time relative to the actuarial
accrued liability for benefits.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 15 -
(3) DESCRIPTION OF THE PLAN, CONTINUED
Actuarial Methods and Assumptions
2011
In the July 1, 2010, actuarial valuation, the entry age actuarial cost method was used. The
actuarial assumptions included (a) a 7.5% investment rate of return (net of administrative
expenses) and (b) projected salary increases ranging from 5% to 19% per year. Both (a) and (b)
included an inflation component of 3%. The projection of benefits for financial accounting
purposes also does not explicitly incorporate the potential effects of any limitation on the State’s
contribution rate disclosed above under Contributions. The actuarial value of assets was
determined using techniques that spread the effects of short-term volatility in the market value of
investments over a 5-year period. The UAAL is being amortized as a level dollar amount on a
closed basis. The remaining amortization period at July 1, 2011, was 7 years.
2010
In the July 1, 2010, actuarial valuation, the entry age actuarial cost method was used. The
actuarial assumptions included (a) a 7.5% investment rate of return (net of administrative
expenses) and (b) projected salary increases ranging from 5% to 19% per year. Both (a) and (b)
included an inflation component of 3%. The projection of benefits for financial accounting
purposes also does not explicitly incorporate the potential effects of any limitation on the State’s
contribution rate disclosed above under Contributions. The actuarial value of assets was
determined using techniques that spread the effects of short-term volatility in the market value of
investments over a 5-year period. The UAAL is being amortized as a level dollar amount on a
closed basis. The remaining amortization period at July 1, 2010, was 8 years.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 16 -
(3) DESCRIPTION OF THE PLAN, CONTINUED
Benefits
In general, the Plan provides defined retirement benefits based on members’ final average
compensation, age, and term of service. In addition, the retirement program provides for benefits
upon disability and to survivors upon death of eligible members. Retirement provisions are as
follows:
• The normal retirement date under the Plan is the date upon which the participant
completes 20 years of credited service, regardless of age. Participants become vested
upon completing 10 years of credited service as a contributing participant of the Plan.
No vesting occurs prior to completing 10 years of credited service. Participants’
contributions are refundable, without interest, upon termination prior to normal
retirement. Participants who have completed 10 years of credited service may elect a
vested benefit in lieu of having their accumulated contributions refunded. If the vested
benefit is elected, the participant is entitled to a monthly retirement benefit commencing
on the date the participant reaches 50 years of age or the date the participant would have
had 20 years of credited service had employment continued uninterrupted, whichever
is later.
• Monthly retirement benefits are calculated at 2.5% of the final average salary (defined as
the average paid base salary of the officer over the highest 30 consecutive months of the
last 60 months of credited service) multiplied by the years of credited service, with a
maximum of 30 years of credited service considered.
• Monthly benefits for participants due to permanent disability incurred in the line of duty
are 2.5% of the participants’ final average salary multiplied by 20 years. This disability
benefit is reduced by stated percentages for partial disability based on the percentage of
impairment. After 10 years of credited service, participants who retire due to disability
incurred from any cause are eligible for a monthly benefit based on 2.5% of their final
average salary multiplied by the years of service. This disability benefit is also reduced
by stated percentages for partial disability based on the percentage of impairment.
Effective July 1, 1998, once a disability benefit is granted to a participant, that participant
is no longer allowed to apply for an increase in the dollar amount of the benefit at a
subsequent date.
• Survivor’s benefits are payable in full to the participant’s beneficiary upon the death of a
retired participant. The beneficiary of any active participant killed in the line of duty is
entitled to a pension benefit. Effective July 1, 1999, a $5,000 death benefit is also paid,
in addition to any survivor’s pension benefits under the Plan, to the participant’s
beneficiary or estate for active or retired members.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 17 -
(3) DESCRIPTION OF THE PLAN, CONTINUED
Benefits, Continued
• The Deferred Option allows participants otherwise eligible for a normal retirement benefit
to defer terminating employment and drawing retirement benefits for a period not to
exceed 5 years. Under the Deferred Option, retirement benefits are calculated based on
compensation and service at the time of election and a separate account is established for
each participant. During the participation period, the employee’s retirement benefit is
credited to the participant’s account along with a portion of the employer’s contribution
and interest. Interest is credited at a rate of 2% below the rate of return on the investment
portfolio of the Plan, with a guaranteed minimum interest equal to the assumed actuarial
interest of 7.5%. Employee contributions cease once participation in the Deferred Option
is elected. At the conclusion of participation in the Deferred Option, the participant will
receive the balance in the separate account under payment terms allowed by the
Deferred Option and will then begin receiving retirement benefit payments as calculated
at the time of election.
• In the 2003 Legislative Session, Senate Bill 688 and House Bill 1464 created a
���Back” DROP for members of the System. The “Back” DROP is a modified deferred
retirement option retirement plan. The “Back” DROP allows the member flexibility by
not having to commit to terminate employment within 5 years. Once a member has met
their normal retirement period of 20 years, the member can choose, upon retirement, to
be treated as if the member had entered into the “Back” DROP. A member, however,
cannot receive credit to the “Back” DROP account based upon any years prior to when
the member reached their normal retirement date. Once a member is ready to retire, the
member can make the election to participate in the “Back” DROP and can receive a
“Back” DROP benefit based upon up to 5 years of participation. The member’s regular
retirement benefit will not take into account any years of service credited to the
“Back” DROP.
• In 2006, the Board approved a method of payment called the Deferred Option Payout
Provision (the “Payout Provision”). The Payout Provision allows a retired member who
has completed participation in the Deferred Option or the “Back” DROP the ability to
leave their account balance in the Plan. The retired member’s account balance will be
commingled and reinvested with the total assets, and therefore the member will not be
able to direct their personal investments. Written election must be made to the Board no
more than 30 days following the termination of employment or within 30 days of the
implementation of the policy.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 18 -
(3) DESCRIPTION OF THE PLAN, CONTINUED
Benefits, Continued
• Upon participating in the Payout Provision, a retired member shall not be guaranteed a
minimum rate of return on their investment. A retired member shall earn interest on their
account as follows:
a) The retired member shall earn two percentage points below the net annual rate of
return of the investment portfolio of the System.
b) If the portfolio earns less than a 2% rate of return, but more than zero, the retired
member shall earn zero percentage points.
c) If the portfolio earns less than zero percentage points, there shall be a deduction
from the retired member’s balance equal to the net annual rate of return of the
investment portfolio of the System.
Interest as earned above shall be credited to the retired member’s account.
The Oklahoma Legislature has the authority to grant percentage increases or special one-time
payments to persons receiving benefits from the Plan. Additionally, certain retirees are entitled
to receive a cost-of-living allowance (COLA) when a COLA is granted to active police officers
in the retiree’s city. Participants eligible to receive both types of benefit increases are to receive
the greater of the legislative increase or the benefit increase the participant would receive
pursuant to the COLA provision.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 19 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS
Cash and Cash Equivalents
At June 30, cash and cash equivalents were composed of the following:
2011 2010
Cash on deposit with Mellon (the "Custodian") $ - -
Short-term investments:
OK INVEST 11,401 11,720
Domestic 22,115 11,211
Total short-term investments 33,516 22,931
Total cash and cash equivalents $ 33,516 22,931
(Amounts in Thousands)
At June 30, 2011 and 2010, as a result of outstanding checks and deposits, the carrying amount
of the Plan’s OK INVEST account totaled $11,400,877 and $11,719,633, respectively, and the
bank balance totaled $13,437,875 and $20,838,113, respectively. The carrying amounts of the
domestic short-term investment and cash on deposit with Mellon were the same as the bank
balances at June 30, 2011 and 2010.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 20 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Cash and Cash Equivalents, Continued
Included in cash and cash equivalents are investments included in the State of Oklahoma’s OK
INVEST Portfolio. Because these investments are controlled by the State of Oklahoma and the
balances change on a daily basis, they are considered cash equivalents. The balances are
overnight funds consisting of U.S. agencies, mortgage-backed agencies, U.S. Treasury notes,
municipal bonds, foreign bonds, tri-party repurchase agreements, certificates of deposit, and
money market mutual funds. As of June 30, the investment balances were as follows:
2011 2010
U.S. agencies $ 4 ,907,982 7 ,984,319
Mortgage-backed agencies 4,874,600 7,372,081
U.S. Treasury notes 193,876 603,618
Municipal bonds 267,844 448,981
Foreign bonds 124,890 83,523
Tri-party repurchase agreements 906,802 1,336,375
Certificates of deposit 634,499 1,185,240
Commercial paper 49,961 -
Money market mutual funds 1,477,421 1,823,976
$ 13,437,875 20,838,113
The Plan’s other short-term investments consist of temporary investments in commingled trust
funds of the Plan’s custodial agent, commercial paper, treasury bills, and U.S. government
agency securities. The commingled trust funds are composed of high-grade money market
instruments with short maturities. Each participant shares the risk of loss in proportion to their
respective investment in the funds.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 21 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Custodial Credit Risk
Custodial credit risk is the risk that in the event of the failure of a counterparty, the Plan will not
be able to recover the value of its investments. Deposits are exposed to custodial credit risk if
they are uninsured and uncollateralized. Investment securities are exposed to custodial credit
risk if they are uninsured, are not registered in the name of the Plan, and are held by a
counterparty or the counterparty’s trust department but not in the name of the Plan. While the
investment policy does not specifically address custodial credit risk of deposits, it does limit the
amount of cash and short-term investments to no more than 5% of each manager’s portfolio. At
June 30, 2011 and 2010, approximately $22,115,000 and $11,211,000, respectively, of cash and
cash equivalents was uninsured and uncollateralized. The policy also provides that investment
collateral be held by a third-party custodian with whom the Plan has a current custodial
agreement in the Plan’s name.
Foreign Currency Risk
Foreign currency risk is the risk that changes in exchange rates will adversely affect the fair
value of an investment or a deposit. The investment policy limits foreign equity investments to
10% of total net assets through its asset allocation policy. Investment in cash and cash
equivalents, equities, and fixed-income securities as of June 30 is shown by monetary unit to
indicate possible foreign currency risk.
Currency
Cash and Cash
Equivalents Equities
Corporate
Bonds Total
Commingled funds $ - 185,952 101,435 287,387
(Amounts in Thousands)
2011
Currency
Cash and Cash
Equivalents Equities
Corporate
Bonds Total
Commingled funds $ - 145,685 84,656 230,341
(Amounts in Thousands)
2010
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 22 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Foreign Currency Risk, Continued
Commingled funds are made up of the following:
• Mondrian International Equity Fund—The fund invests in international equity securities.
The fund’s allocation by country/region as of June 30 was as follows:
Country/Region Allocation 2011 2010
PACIFIC
Australia 7.2% 10.2%
Hong Kong 0.0% 1.3%
Japan 20.0% 22.4%
New Zealand 0.3% 0.6%
Singapore 4.7% 4.8%
Taiwan 1.8% 2.6%
34.0% 41.9%
EUROPE
Belgium 0.0% 0.2%
Finland 0.0% 0.4%
France 14.6% 13.4%
Germany 4.6% 4.8%
Israel 1.0% 0.0%
Italy 4.9% 1.6%
Netherlands 5.6% 3.1%
Spain 6.6% 6.5%
Switzerland 5.6% 5.4%
United Kingdom 21.7% 20.0%
64.6% 55.4%
OTHER
South Africa 0.0% 0.9%
CASH 1.4% 1.8%
100.0% 100.0%
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 23 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Foreign Currency Risk, Continued
• Artio International Equity Group Trust Fund—The fund seeks long-term growth of
capital by investing in a diversified portfolio of international equities in developed and
emerging markets. The fund’s average portfolio weight by geographic allocation as of
June 30 was as follows:
Geographic Allocation 2011 2010
Dollar bloc 13.71% 26.69%
Developed Asia markets 4.71% 0.08%
Emerging markets 29.00% 23.87%
Developed Europe markets 27.82% 23.06%
Japan 9.23% 12.63%
United Kingdom 15.22% 11.44%
Other 0.31% 2.23%
100.00% 100.00%
• Loomis Sayles World Bond Fund—The fund normally invests at least 80% of its net
assets in fixed-income securities. The fund invests primarily in investment grade fixed-income
securities worldwide, although it may invest up to 20% of its fair value in lower
rated fixed-income securities. Securities held by the fund may be denominated in any
currency, may be of issuers located in countries with emerging securities markets, or may
be fixed-income securities of any maturity. The fund’s allocation by currency as of
June 30 was as follows:
Currency Allocation 2011 2010
U.S. dollars 34.24% 39.63%
Euro countries 23.58% 21.99%
Japanese yen 19.29% 14.74%
British pound sterling 4.22% 6.19%
Non-Euro 4.79% 5.96%
Canadian dollar 3.65% 3.53%
Developing countries 9.00% 7.16%
Australia and New Zealand 1.23% 0.80%
100.00% 100.00%
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 24 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Foreign Currency Risk, Continued
• OCM International Convertible Trust—The fund invests principally in convertible
securities of foreign issuers. The funds allocation by country as of June 30 was as
follows:
Country Allocation 2011 2010
Australia 2.82% 6.14%
Brazil 1.69% 1.60%
Canada 5.47% 7.01%
China 11.77% 5.26%
Columbia 0.99% 0.33%
Czech Republic 0.00% 1.22%
Finland 2.04% 1.76%
France 12.24% 9.75%
Germany 6.58% 4.18%
Hong Kong 0.41% 1.66%
Hungary 0.76% 1.73%
India 4.34% 6.80%
Israel 0.00% 1.59%
Italy 2.15% 1.92%
Japan 7.07% 5.75%
Kazakhstan 0.00% 1.51%
Luxembourg 0.00% 0.04%
Malaysia 1.85% 4.67%
Netherlands 2.39% 3.40%
Norway 5.75% 6.99%
Philippines 1.88% 0.00%
Portugal 0.95% 1.18%
Russian Federation 4.35% 0.23%
Singapore 2.50% 3.51%
South Africa 4.42% 2.17%
Korea—Republic of 0.80% 0.79%
Spain 3.33% 1.40%
Sweden 1.72% 1.47%
Switzerland 1.89% 1.54%
United Arab Emirates 0.00% 0.18%
United Kingdom 9.84% 14.22%
100.00% 100.00%
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 25 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Credit Risk
Fixed-income securities are subject to credit risk. Credit quality rating is one method of
assessing the ability of the issuer to meet its obligation. The investment portfolio for domestic
fixed-income securities requires the portfolio to maintain an average of A+ or higher. For
international fixed-income securities, the investment policy requires the portfolio to invest in
securities equal to or better than Moody’s Baa3 or Standard & Poor’s BBB. Exposure to credit
risk as of June 30 was as follows:
Investment Type
Moody's Ratings
(Unless Noted) Fair Value
Fair Value as a
Percent of Total
Fixed Maturity
Fair Value
U.S. government securities UST(2) $ 14,121 100.00%
Total U.S. government securities $ 14,121 100.00%
Domestic corporate bonds AGY(1) $ 50,515 22.04%
Aaa 12,490 5.45%
A- (SP) 472 0.21%
Aa1 575 0.25%
Aa2 3,660 1.60%
Aa3 5,883 2.57%
A1 5,060 2.21%
A2 11,709 5.11%
A3 11,351 4.96%
B1 318 0.14%
B3 576 0.25%
Ba1 172 0.08%
Ba2 359 0.16%
Baa1 14,132 6.17%
Baa2 11,950 5.22%
Baa3 5,649 2.47%
Caa1 161 0.07%
Not Rated 94,036 41.04%
Total domestic corporate bonds $ 229,068 100.00%
(Continued)
2011
(Amounts in Thousands)
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 26 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Credit Risk, Continued
Investment Type
Moody's Ratings
(Unless Noted) Fair Value
Fair Value as a
Percent of Total
Fixed Maturity
Fair Value
International corporate bonds Not Rated $ 101,435 100.00%
Total international corporate bonds $ 101,435 100.00%
________
(1) U.S. government agency securities
(2) U.S. Treasury securities
2011
(Amounts in Thousands)
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 27 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Credit Risk, Continued
Investment Type
Moody's Ratings
(Unless Noted) Fair Value
Fair Value as a
Percent of Total
Fixed Maturity
Fair Value
U.S. government securities AGY(1) $ 10,444 36.86%
UST(2) 17,894 63.14%
Total U.S. government securities $ 28,338 100.00%
Domestic corporate bonds AGY(1) $ 38,782 19.31%
AAA (SP) 379 0.19%
Aaa 9,492 4.73%
A- (SP) 328 0.16%
Aa1 666 0.33%
Aa2 4,427 2.20%
Aa3 2,654 1.32%
A1 6,692 3.33%
A2 11,780 5.87%
A3 9,358 4.66%
B1 893 0.44%
Ba1 141 0.07%
Ba2 242 0.12%
Baa1 13,859 6.90%
Baa2 9,411 4.69%
Baa3 4,499 2.24%
Caa1 928 0.46%
Not Rated 86,272 42.98%
Total domestic corporate bonds $ 200,803 100.00%
(Continued)
(Amounts in Thousands)
2010
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 28 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Credit Risk, Continued
Investment Type
Moody's Ratings
(Unless Noted) Fair Value
Fair Value as a
Percent of Total
Fixed Maturity
Fair Value
International corporate bonds Not Rated $ 84,656 100.00%
Total international corporate bonds $ 84,656 100.00%
________
(1) U.S. government agency securities
(2) U.S. Treasury securities
2010
(Amounts in Thousands)
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 29 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Interest Rate Risk
Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an
investment. While all investments are subject to market changes, securities invested in index
funds are more sensitive to market risk. Although the investment policy does not specifically
address the duration of fixed-income securities, the Plan does monitor interest rate risk by
monitoring the performance of each investment manager. As of June 30, the Plan had the
following investments with maturities.
Investment Type
Less
Than 5
5 or More,
Less
Than 10
10 or
More
Investments
with No
Duration
Total Fair
Value
U.S. government securities $ - 11,299 2,822 - 1 4,121
Domestic corporate bonds:
Asset-backed securities - - 14 - 14
CMBS - - 13,107 - 13,107
CMO corporate - - 1,162 - 1,162
Corporates and other credit 30,181 29,433 10,621 - 70,235
U.S. equity funds - - - 7 8,311 78,311
U.S. government mortgages 80 4,368 46,066 - 50,514
Venture capital - - - 5 ,136 5,136
U.S. fixed-income funds - - - 1 0,589 1 0,589
Total domestic corporate bonds 30,261 33,801 70,970 9 4,036 229,068
International corporate bonds - - - 1 01,435 1 01,435
$ 30,261 45,100 73,792 1 95,471 344,624
Investment Maturities at Fair Value (in Years)
(Amounts in Thousands)
2011
As noted above, the Plan had $50,514 of investments in mortgages, of which $32,583 represents
FNMA loans and the remaining balance consists of FHLMC mortgages.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 30 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Interest Rate Risk, Continued
Investment Type
Less
Than 5
5 or More,
Less
Than 10
10 or
More
Investments
with No
Duration
Total Fair
Value
U.S. government securities $ 10,444 10,563 7,331 - 2 8,338
Domestic corporate bonds:
Asset-backed securities - 455 26 - 481
CMBS - 26 9,077 - 9,103
CMO corporate - - 2,869 - 2,869
Corporates and other credit 29,254 23,995 10,047 - 63,296
U.S. equity funds - - - 7 0,199 70,199
U.S. government mortgages 157 3,669 34,956 - 38,782
Venture capital - - - 5 ,238 5,238
U.S. fixed-income funds - - - 1 0,835 1 0,835
Total domestic corporate bonds 29,411 28,145 56,975 8 6,272 200,803
International corporate bonds - - - 8 4,656 8 4,656
$ 39,855 38,708 64,306 1 70,928 313,797
Investment Maturities at Fair Value (in Years)
(Amounts in Thousands)
2010
As noted above, the Plan had $38,782 of investments in mortgages, of which $21,714 represents
FNMA loans and the remaining balance consists of FHLMC mortgages.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 31 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Securities Lending
The Plan’s investment policy allows the loan of securities through a lending agent to various
institutions, with a simultaneous agreement to return the collateral for the same securities in the
future, generally less than 30 days. There are no restrictions on the dollar amount of the loans
that can be made. The collateral held and the fair value of the securities on loan for the Plan at
June 30 were as follows:
Collateral
Held
Fair Value of
Securities on Loan
Percent of
Collateral to Loan
U.S. issuers $ 44,578 43,452 103%
Collateral
Held
Fair Value of
Securities on Loan
Percent of
Collateral to Loan
U.S. issuers $ 48,845 47,691 102%
(Amounts in Thousands)
(Amounts in Thousands)
2011
2010
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 32 -
(4) CASH, CASH EQUIVALENTS, AND INVESTMENTS, CONTINUED
Securities Lending, Continued
As the Plan does not have the ability to pledge or sell non-cash collateral without a borrower
default, the non-cash collateral the Plan had received at June 30, 2011 and 2010, was not
included in the accompanying statements of plan net assets. According to the securities lending
agreement, if at the close of trading on any business day, the fair value of the collateral presently
delivered by the borrower is less than 100% of the fair value of such loaned securities, the Plan
shall demand the borrower deliver collateral equal to 102% for domestic securities and 105% for
non-U.S. securities, at the close of the next business day. At the maturity of the loans, the Plan
receives a loan premium and the securities are returned. The Plan has no credit risk exposure to
borrowers because the amount the Plan owes the borrowers exceeds the amount the borrowers
owe the Plan. As of June 30, 2011 and 2010, the Plan had no losses on securities lending
transactions resulting from default of a borrower or lending agent. Contracts with lending agents
require them to indemnify the Plan if the borrowers fail to return the securities or otherwise fail
to pay the Plan for income while the securities are on loan. The securities on loan are included in
the respective investment categories in the accompanying statements of plan net assets. Cash
collateral is invested in the lending agent’s short-term investment pool and included as an asset
in the accompanying statements of plan net assets, with an offsetting liability for the return of the
collateral. The securities lending agreement sets forth credit quality standards, acceptable
investments, diversification standards, and maturity and liquidity constraints for the investment
fund.
The Plan’s investment guidelines do not require a matching of investment maturities with loan
maturities, but do establish minimum levels of liquidity and other restrictions designed to
minimize the interest rate risk associated with not matching the maturities of the investments
with the loans. The cash collateral investments had an average weighted maturity of 47 days and
36 days at June 30, 2011 and 2010, respectively.
Foreign Currency Transactions
The Plan has certain investment managers that trade on foreign exchanges. Foreign currency
gains and losses are calculated at the transaction date using the current exchange rate, and assets
are remeasured to U.S. dollars using the exchange rate as of each month end. During the years
ended June 30, 2011 and 2010, there were no foreign currency gains and no remeasurement
losses.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 33 -
(5) DERIVATIVES AND OTHER INSTRUMENTS
Derivative instruments are financial contracts whose values depend on the values of one or more
underlying assets, reference rates, or financial indexes. They include futures contracts, swap
contracts, options contracts, and forward foreign currency exchange. The Plan’s investment policy
notes that in order to achieve maximum returns, the Plan may diversify between various
investments, including common stocks, bonds, real estate, private equity, venture equity and other
hedge fund strategies, short-term cash instruments, and other investments deemed suitable. The
investment policy also requires investment managers to follow certain controls and documentation
and risk management procedures. The Plan did not have any direct derivative investments at
June 30, 2011 or 2010. Investments in limited partnerships (alternative investments) and
commingled funds may include derivatives. The Plan’s investments in alternative investments are
reflected at fair value, and any exposure is limited to its investment in the partnership and any
unfunded commitment. Commingled funds have been reviewed to ensure they are in compliance
with the Plan’s investment policy.
The Plan invests in mortgage-backed securities, which are reported at fair value in the statements
of plan net assets and are based on the cash flows from interest and principal payments by the
underlying mortgages. As a result, they are sensitive to prepayments by mortgagees, which are
likely in declining interest rate environments, thereby reducing the values of these securities. The
Plan invests in mortgage-backed securities to diversify the portfolio and increase the return while
minimizing the extent of risk. Details regarding interest rate risks for these investments are
included under the interest rate risk disclosures.
(6) INVESTMENT IN BUILDING
The Plan owns a building (Columbus Square) originally purchased for approximately
$1.5 million, and it is held as a long-term investment. The building is accounted for at fair value
based on periodic appraisals, and rental income and expenses are reported currently. The Plan
utilizes part of the building for its administrative offices and charges itself rent, which is
reflected as administrative expense and other investment income. The fair value of the building
at June 30, 2011 and 2010, was estimated at approximately $3.7 million and $3.5 million,
respectively.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 34 -
(7) INVESTMENT IN ALTERNATIVE INVESTMENTS
The Plan has also invested in alternative investments such as limited partnerships, limited
liability companies, and real estate investment funds. The alternative investments at June 30 are
summarized in the following table.
Investment Purpose 2011 2010
Accel Europe, LP Invests in companies that
are organized outside
the United States. $ 5,293 6,737
Arsenal Capital
Partners, L.P.
Invests in portfolio companies. 4,440 3,264
Arsenal II Invests in manufacturing,
specialty chemicals, and
healthcare industry. 15,524 7,670
Attalus Long/Short Equity
Fund, LTD.
Invests in other investment
companies, also referred to
as hedge funds, consisting of
debt and equity securities as
well as private equity. 77,115 71,819
BBT Overseas
Partners, LP
Invests in equity securities
and financial acquisitions. 709 709
Calera Partners III, LP Invests in equity securities. 5,440 5,456
Calera Partners IV, LP Invests in equity securities. 6,312 3,719
FirstMark III, LP Invests in equity securities. 7,396 8,064
FirstMark IV Invests in equity securities. 4,520 3,937
FMVP General
Partners II, LLC
Invests in the securities of
technology and
development stage
companies. 39 115
(Continued)
Fair Market Value
(Amounts in Thousands)
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 35 -
(7) INVESTMENT IN ALTERNATIVE INVESTMENTS, CONTINUED
Investment Purpose 2011 2010
Grosvenor Long/Short
Equity Fund, LP
Invests in domestic and
international securities. 173,437 156,509
Hicks, Muse, Tate &
Furst Equity Fund V, LP
Invests in private equity
securities and leveraged
acquisitions. 1,331 2,315
HM Capital Sector
Performance
Invests primarily in debt
and equity securities. 6,830 9,562
Knightsbridge Venture
Capital VI
Invests in early stage U.S.
venture capital partnership. 9,195 7,373
Levine Leichtman Capital
Partners III, LP
Invests in securities of
middle market companies. 5,554 6,682
Levine Leichtman Capital
Partners IV, LP
Invests in public and private
securities in companies
conducting substantial
operations. 5,035 1,402
Lexington Capital
Partners
Invests in private equity. 14,355 12,068
LightSpeed Venture
Partners VI, LP
Invests in securities issued
primarily in start-ups, early
stage ventures, and
expansion stage companies
focusing on technology. 3,761 4,060
Marathon Fund IV, LP To acquire, manage, and
resell controlling interests
in middle market companies. 412 1,210
(Continued)
(Amounts in Thousands)
Fair Market Value
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 36 -
(7) INVESTMENT IN ALTERNATIVE INVESTMENTS, CONTINUED
Investment Purpose 2011 2010
Marathon Fund V, LP Invests in portfolio companies. 12,814 9,977
Newport Mesa, LLC Invests in non-readily
marketable investment
vehicles. 159,081 148,463
Newstone Capital Invests in leveraged buyouts,
recapitalization, and later-stage
growth financing. 2,850 4,277
Newstone Capital II Invests in leveraged buyouts,
recapitalization, and later-stage
growth financing. 1,401 -
Oaktree Opportunities
Fund II, LP
Invests in distressed debt. 5 5
Oaktree Opportunities
Fund III, LP
Invests in entities
experiencing financial
difficulties. 57 92
Oaktree Opportunities
Fund IV, LP
Invests in distressed debt. 24 48
Oaktree Opportunities
Fund V, LP
Invests in distressed debt. 982 867
Oaktree Opportunities
Fund VI, LP
Invests in distressed debt.
2,976 3,282
(Continued)
(Amounts in Thousands)
Fair Market Value
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 37 -
(7) INVESTMENT IN ALTERNATIVE INVESTMENTS, CONTINUED
Investment Purpose 2011 2010
Oaktree Opportunities
Fund VII
Invests in companies
undergoing or having
undergone reorganization
or restructuring. 5,903 6,866
Oaktree Opportunities
Fund VIIb
Invests in companies
undergoing or having
undergone reorganization
or restructuring. 7,794 9,324
Oaktree Opportunities
Fund VIII, LP
Invests in distressed debt.
6,154 2,111
Peak Partners, LP Speculative trading of
commodity futures
contracts. Options on
futures contracts and
forward contracts. 25,420 29,568
PruTimber Fund II, LP Invests in timber. - 11
Siguler Guff Distressed
Opportunities
Fund, L.L.C.
Invests in securities of
companies undergoing
distress, operating
difficulties, and significant
reconstructing. 9,714 10,820
Siguler Guff Distressed
Opportunities
Fund II, LP
Invests in securities of
companies undergoing
distress, operating
difficulties, and significant
reconstructing. 14,147 19,565
(Continued)
Fair Market Value
(Amounts in Thousands)
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 38 -
(7) INVESTMENT IN ALTERNATIVE INVESTMENTS, CONTINUED
Investment Purpose 2011 2010
Siguler Guff Distressed
Opportunities
Fund III, LP
Invests in securities of
companies undergoing
distress, operating
difficulties, and significant
reconstructing. 13,978 12,388
Sun Capital Invests in privately
negotiated subordinated
debt and equity securities. 6,423 4,197
TCW/Cresent Mezzanine
Partners III, LP
Invests in privately
negotiated subordinated
debt and equity securities. 1,262 1,837
TCW/Cresent Mezzanine
Partners IV, LP
Invests in privately
negotiated subordinated
debt and equity securities. 6,427 6,850
TCW/Cresent Mezzanine
Partners V, LP
Invests in privately
negotiated subordinated
debt and equity securities. 5,324 4,084
Thompson Street Capital
Partners
Private investment in
companies. 8,294 8,371
Venture Lending &
Leasing III, LLC
Debt financing and direct
investment in equity
securities of venture
capital-backed companies. 491 561
Warburg Pincus Making private equity and
related investments. 11,864 6,731
(Continued)
(Amounts in Thousands)
Fair Market Value
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 39 -
(7) INVESTMENT IN ALTERNATIVE INVESTMENTS, CONTINUED
Investment Purpose 2011 2010
Weathergage Venture
Capital
Invests in information
technology and life
science funds. 4,338 2,336
Weathergage Venture
Capital II
Invests in information
technology and life
science funds. 938 -
Weiss, Peck, & Greer
Venture Associates V,
LLC
Invests in the securities of
technology and
development stage
companies. 1,356 1,616
$ 656,715 606,918
Fair Market Value
(Amounts in Thousands)
As of June 30, 2011 and 2010, the Plan had a remaining commitment to fund approximately
$65 million and $86 million, respectively, in various partnerships and limited liability
companies.
Several of the limited partnerships invest in equity securities outside of the United States and
may enter into forward contracts to purchase or sell securities at specified dates in the future at a
guaranteed price in a foreign currency to protect against fluctuations in exchange rates of foreign
currency. In addition, some of the partnerships may engage in hedging transactions involving
derivative instruments as a part of their investment strategy.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 40 -
(8) INVESTMENT IN REAL ESTATE FUND
The Plan’s investment in real estate fund consists of one commingled pension trust fund. The
real estate investment fund at June 30 is summarized in the following table:
Investment Purpose 2011 2010
JPMorgan Chase Bank
Strategic Property Fund
The Fund owns and seeks
improved real estate projects
with stabilized occupancies in
an effort to produce a relatively
high level of current income
combined with moderate
appreciation potential. $ 41,517 34,372
Fair Value
The entity accounts for its investments at fair value. Fair values of real estate investments are
determined by JPMorgan at each valuation date. As part of JPMorgan’s valuation process,
independent appraisers value properties on an annual basis (at a minimum).
(9) CAPITAL ASSETS
The Plan has only one class of capital assets, consisting of software. A summary as of June 30 is
as follows:
Balance at
June 30, 2010 Additions Disposals
Balance at
June 30, 2011
Cost $ 1,014,045 - - 1,014,045
Accumulated amortization - ( 101,404) - ( 101,404)
Capital assets, net $ 1,014,045 ( 101,404) - 912,641
Balance at
June 30, 2009 Additions Disposals
Balance at
June 30, 2010
Cost $ 989,045 25,000 - 1,014,045
Accumulated amortization - - - -
Capital assets, net $ 989,045 25,000 - 1,014,045
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 41 -
(10) DEFERRED OPTION BENEFITS PAYABLE
As noted previously, the Plan has Deferred Option, “Back” DROP, and Payout Provision
benefits available to its members. A summary of the changes in the liability for the various
options as of June 30 is as follows:
Deferred
Option
"Back"
DROP
Payout
Provision Total
Beginning balance $ 6,226 1,689 1,999 9,914
Employer contributions 211 970 - 1,181
Member contributions - 1,194 - 1,194
Deferred benefits 1,772 7,939 - 9,711
Payments (2,577) (12,317) - (14,894)
Interest 885 2,404 323 3 ,612
Ending balance $ 6,517 1,879 2,322 10,718
(Amounts in Thousands)
2011
Deferred
Option
"Back"
DROP
Payout
Provision Total
Beginning balance $ 9,274 323 1,231 1 0,828
Employer contributions 250 1,505 - 1,755
Member contributions - 1,853 - 1,853
Plan reassignments (145) (502) 647 -
Deferred benefits 1,944 12,992 - 14,936
Payments (5,847) (18,995) - (24,842)
Interest 750 4,513 121 5 ,384
Ending balance $ 6,226 1,689 1,999 9,914
(Amounts in Thousands)
2010
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 42 -
(11) PLAN TERMINATION AND STATE FUNDING
The Plan has not developed an allocation method if it were to terminate. The Oklahoma
Legislature is required by statute to make such appropriation as necessary to assure that benefit
payments are made.
A suggested minimum contribution from the State of Oklahoma is computed annually by an
actuary hired by the State of Oklahoma. However, funding by the State of Oklahoma to the Plan
is based on statutorily determined amounts rather than the actuarial calculations of the amount
required to fund the Plan.
(12) FEDERAL INCOME TAX STATUS
As an instrumentality of the State of Oklahoma, the Plan is tax-exempt. It is not subject to the
Employee Retirement Income Security Act of 1974. The Plan has received favorable
determination from the Internal Revenue Service (IRS) regarding its tax-exempt status. The Plan
has been amended since receiving the determination letter. However, the Plan administrator
believes that the Plan is designed and is currently being operated in substantial compliance with
the applicable requirements of the Internal Revenue Code.
(13) HISTORICAL INFORMATION
Historical trend information designed to provide information about the Plan’s progress made in
accumulating sufficient assets to pay benefits when due is presented in Exhibits I and II.
(14) LEGISLATIVE AMENDMENTS
The following is a summary of significant plan provision changes that were enacted by the
Oklahoma Legislature during 2011 and 2010:
2011
• Senate Bill 347—requires forfeiture of certain retirement benefits by officers or
employees upon conviction of certain crimes
• Senate Bill 1112—contained the required language necessary for the System to remain an
IRS qualified plan.
• House Bill 2132—modifies the Oklahoma Pension Legislation Actuarial Analysis Act.
All cost of living adjustments (COLA) would become fiscal bills. The retirement
systems will no longer have any COLA assumptions.
2010
• Senate Bill 1989—contained the required language necessary for the System to remain an
IRS qualified plan.
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO FINANCIAL STATEMENTS, CONTINUED
See Independent Auditors’ Report.
- 43 -
(15) CONTINGENCIES
The Plan is involved in legal proceedings in the normal course of operations, none of which, in
the opinion of management, will have a material effect on the net assets or changes in net assets
of the Plan.
(16) SUBSEQUENT EVENTS
Market Fluctuations
Subsequent to June 30, 2011, the United States financial market has had considerable downward
fluctuation. The long-term ratings of U.S. government and federal agencies were lowered from
AAA to AA+ by Standard & Poor’s rating agency. As the investments of the Plan are at market
value, these values have varied considerably and may continue to vary.
SUPPLEMENTARY INFORMATION REQUIRED BY
GOVERNMENTAL ACCOUNTING STANDARDS BOARD
STATEMENTS NO. 25 AND 50
Actuarial
Valuation
Date
Actuarial
Value of
Assets
(a)
Unfunded
AAL
(UAAL)
(b-a)
Covered
Payroll
(c)
UAAL as a
Percentage of
Covered Payroll
[(b-a)/c](1)
June 20, 2002 $ 1,370 1,554 184 88.2% 160 114.9%
June 30, 2003 1,392 1,647 255 84.5% 171 149.5%
June 30, 2004 1,400 1,727 327 81.1% 176 186.4%
June 30, 2005 1,424 1,812 388 78.6% 189 205.3%
June 30, 2006 1,490 1,910 420 78.0% 204 205.6%
June 30, 2007 1,627 2,036 409 79.9% 221 184.8%
June 30, 2008 1,752 2,132 380 82.2% 240 158.5%
June 30, 2009 1,718 2,253 535 76.3% 254 210.9%
June 30, 2010 1,754 2,341 587 74.9% 250 235.3%
June 30, 2011 1,823 1,960 (2) 137 93.0% (2) 258 53.3%
Exhibit I
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
SCHEDULE OF FUNDING PROGRESS
(In Millions)
June 30, 2011
_________
Actuarial
Accrued
Liability (AAL)
Entry Age
(b)
Funded
Ratio
(a/b)
(1) The amounts shown in the table above are rounded. The percentages shown are calculated on the actual
amounts rather than on the rounded amounts.
(2) The decrease in the AAL and the corresponding increase in the funded ratio are the results of legislation
which changed the actuarial assumptions to no longer include cost-of-living adjustments (COLA’s).
See Independent Auditors’ Report.
See accompanying notes to required supplementary information.
- 44 -
See Independent Auditors’ Report.
See accompanying notes to required supplementary information.
- 45 -
Exhibit II
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
SCHEDULE OF CONTRIBUTIONS FROM THE EMPLOYER AND
OTHER CONTRIBUTING ENTITIES
(In Thousands)
J une 30, 2011
Year Ended
Annual Required
Contributions
Employer
Contributions
State
Contributions Total
Percentage
Contributed
June 30, 2002 $ 54,918 22,411 19,811 4 2,222 77%
June 30, 2003 71,705 23,738 20,400 44,138 62%
June 30, 2004 63,511 23,915 - 23,915 38%
June 30, 2005 73,756 25,001 23,730 48,731 66%
June 30, 2006 85,391 26,490 23,584 50,074 59%
June 30, 2007 95,082 28,258 28,122 56,380 59%
June 30, 2008 100,561 30,061 26,020 56,081 56%
June 30, 2009 102,610 31,675 26,913 58,588 57%
June 30, 2010 132,456 32,240 22,292 54,532 41%
June 30, 2011 146,816 31,846 24,645 56,491 38%
Contributions by Source
See Independent Auditors’ Report.
- 46 -
Exhibit III
OKLAHOMA POLICE PENSION AND RETIREMENT PLAN
Administered by
OKLAHOMA POLICE PENSION AND RETIREMENT SYSTEM
NOTES TO REQUIRED SUPPLEMENTARY INFORMATION
June 30, 2011
The information presented in the required supplementary schedules was determined as part of an
actuarial valuation by an independent enrolled actuary (Buck Consultants) at the dates indicated.
Additional information as of the June 30, 2011, valuation follows:
Assumptions
Actuarial cost method: Entry age
Amortization method: Level dollar—closed
Remaining amortization: 7 years
Asset valuation method: 5-year smoothed
Actuarial assumptions
Investment rate of return: 7.5%
Projected salary increases*: 5% to 19%
Cost-of-living adjustments: Police officers eligible to receive increased benefits according
to repealed Section 50-120 of Title 11 of the Oklahoma
Statutes pursuant to a court order receive an adjustment of 1/3
to 1/2 of the increase or decrease of any adjustment to the
base salary of a regular police officer, based on an increase in
base salary.
______
* Includes inflation at 3%.
- 47 -
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND
ON COMPLIANCE AND OTHER MATTERS BASED ON
AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
To the Board of Trustees of
the Oklahoma Police Pension and Retirement System
We have audited the financial statements of the Oklahoma Police Pension and Retirement Plan
(the “Plan”) administered by the Oklahoma Police Pension and Retirement System (the “System”),
which is a part of the State of Oklahoma financial reporting entity, as of and for the year ended
June 30, 2011, and have issued our report thereon dated September 19, 2011, which includes an
explanatory paragraph disclaiming an opinion on required supplementary information. We conducted
our audit in accordance with auditing standards generally accepted in the United States 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
In planning and performing our audit, we considered the Plan’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 Plan’s internal control over financial reporting. Accordingly, we do not
express an opinion on the effectiveness of the Plan’s internal control over financial reporting.
A deficiency 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 a 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.
(Continued)
- 48 -
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND
ON COMPLIANCE AND OTHER MATTERS BASED ON
AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS, CONTINUED
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Plan’s financial statements are free
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 Government Auditing
Standards.
This report is intended solely for the information and the use of the Board of Trustees, management of
the Plan, and the State of Oklahoma and is not intended to be and should not be used by anyone other
than these specified parties.
Shawnee, Oklahoma
September 19, 2011
1421 East 45th Street • Shawnee, OK 74804
P: 405.878.7300 • www.finley-cook.com • F: 405.395.3300
September 19, 2011
To the Board of Trustees of
the Oklahoma Police Pension and Retirement System
We have audited the financial statements the Oklahoma Police Pension and Retirement Plan administered by
the Oklahoma Police Pension and Retirement System (collectively referred to as the “System”) as of and for
the year ended June 30, 2011, and have issued our report thereon dated September 19, 2011. Professional
standards require that we provide you with information about our responsibilities under auditing standards
generally accepted in the United States and Government Auditing Standards, as well as certain information
related to the planned scope and timing of our audit. We have communicated such information in our
engagement letter to you dated November 16, 2010. Professional standards also require that we
communicate to you the following information related to our audit.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The
significant accounting policies used by the System are described in Note 2 to the financial
statements. The application of existing policies was not changed during the year ended
June 30, 2011. We noted no transactions entered into by the System during the year for which there
is a lack of authoritative guidance or consensus. All significant transactions have been recognized in
the financial statements in the proper period.
In December 2010, GASB issued Statement No. 62, Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements
(GASB 62). The objective of GASB 62 is to incorporate into the GASB’s authoritative literature
certain accounting and financial reporting guidance that is included in the following pronouncements
issued on or before November 30, 1989, which does not conflict with or contradict GASB
pronouncements:
1. Financial Accounting Standards Board (FASB) Statements and Interpretations
2. Accounting Principles Board Opinions
3. Accounting Research Bulletins of the American Institute of Certified Public Accountants’
(AICPA) Committee on Accounting Procedures.
To the Board of Trustees of
the Oklahoma Police Pension and Retirement System
September 19, 2011
Page -2-
Significant Audit Findings, Continued
Qualitative Aspects of Accounting Practices, Continued
The requirements in GASB 62 will improve financial reporting by contributing GASB’s efforts to
codify all sources of generally accepted accounting principles for state and local governments so that
they derive from a single source. GASB 62 is effective for financial statements for periods
beginning after December 15, 2011, with earlier application encouraged. The provisions of GASB
62 are required to be applied retroactively for all periods presented.
Accounting estimates are an integral part of the financial statements prepared by management and
are based on management’s knowledge and experience about past and current events and
assumptions about future events. Certain accounting estimates are particularly sensitive because of
their significance to the financial statements and because of the possibility that future events
affecting them may differ significantly from those expected. The most sensitive estimate affecting
the financial statements was:
Management’s estimate of the market value of investments is based on the investment
custodian. We evaluated the key factors and assumptions used to develop the estimate of
investment market value in determining that it was reasonable in relation to the financial
statements taken as a whole.
Difficulties Encountered in Performing the Audit
We encountered no difficulties in dealing with management in performing and completing our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during
the audit, other than those that are trivial, and communicate them to the appropriate level of
management. Management has corrected all such statements. In addition, none of the misstatements
detected as a result of audit procedures and corrected by management were material, either
individually and in the aggregate, to the financial statements taken as a whole.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a
financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that
could be significant to the financial statements or the auditors’ report. We are pleased to report that
no such disagreements arose during the course of our audit.
To the Board of Trustees of
the Oklahoma Police Pension and Retirement System
September 19, 2011
Page -3-
Significant Audit Findings, Continued
Management Representations
We have requested certain representations from management that are included in the management
representation letter dated September 19, 2011.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation
involves application of an accounting principle to the System’s financial statements or a
determination of the type of auditors’ opinion that may be expressed on those statements, our
professional standards require the consulting accountant to check with us to determine that the
consultant has all the relevant facts. To our knowledge, there were no such consultations with other
accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and
auditing standards, with management prior to retention as the System’s auditors. However, these
discussions occurred in the normal course of our professional relationship and our responses were
not a condition to our retention.
Other Information in Documents Containing Audited Financial Statements
With respect to the supplementary information accompanying the financial statements, we made
certain inquiries of management and evaluated the form, content, and methods of preparing the
information to determine that the information complies with accounting principles generally
accepted in the United States, the method of preparing it has not changed from the prior period, and
the information s appropriate and complete in relation to our audit of the financial statements. We
compared and reconciled the supplementary information to the underlying accounting records used
to prepare the financial statements or to the financial statements themselves.
To the Board of Trustees of
the Oklahoma Police Pension and Retirement System
September 19, 2011
Page -4-
Other Required Communications
We as independent auditors are required to:
a. Communicate significant deficiencies and material weaknesses in internal control to the
audit committee or its equivalent.
b. Report directly to the audit committee (or equivalent) any fraud that causes a material
misstatement of the financial statements and any fraud involving senior management.
Fraud perpetrated by lower-level employees is also to be reported if it resulted in an
individually significant misstatement.
c. Report illegal acts that come to our attention (except those that are clearly
inconsequential).
We have nothing to report.
This information is intended solely for the information and use of the Board of Trustees, management of the
Plan, and the State of Oklahoma and is not intended to be and should not be used by anyone other than these
specified parties.
Sincerely,
FINLEY & COOK, PLLC
CERTIFIED PUBLIC ACCOUNTANTS
Nathan Atchison
Partner