Hopkins Fire Relief Audit - 12.31.17HOPKINS FIRE DEPARTMENT
RELIEF ASSOCIATION
HOPKINS, MINNESOTA
FINANCIAL STATEMENTS AND
REQUIRED SUPPLEMENTARY INFORMATION
YEAR ENDED
DECEMBER 31, 2017
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Table of Contents
December 31, 2017
Introductory Section
Association
Financial Section
Independent Auditor's Report
Management's Discussion and Analysis
Basic Financial Statements
Governmental Fund - General Fund
Balance Sheet/Statement of Net Position
Statement of Revenues, Expenditures and
Changes in Fund Balance/Statement of Activities
Fiduciary Funds - Special Pension Trust Fund
Statement of Fiduciary Net Position
Statement of Changes in Fiduciary Net Position
Notes to the Financial Statements
Pace No.
U
14
15
16
17
18
Required Supplementary Information
Schedule of Changes in the Association's Net Pension Liability and Related Ratios 28
Schedule of Contributions 29
Schedule of Investment Returns 29
Compliance Section
Independent Auditor's Report
on Minnesota Legal Compliance
Schedule of Findings
2
31
32
INTRODUCTORY SECTION
HOPKINS FIRE DEPARTMENT RELIEF ASSOCIATION
HOPKINS, MINNESOTA
YEAR ENDED
DECEMBER 31, 2017
Name
Michael Tungesvick
Kevin DenHartog
Greg Smith
Chris Herby
Dan Cacka
Deane Wallick
Molly Cummings
Amy Domeier
Dale Specken
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Association
Year Ended December 31, 2017
Officers
Trustees
Ex -Officio Trustees
4
Title
President
Vice President
Secretary
Treasurer
Trustee
Trustee
Mayor
City Clerk
Fire Chief
FINANCIAL SECTION
HOPKINS FIRE DEPARTMENT RELIEF ASSOCIATION
HOPKINS, MINNESOTA
YEAR ENDED
DECEMBER 31, 2017
ABDO
EICK &
MEYERS 111'
Gejfi(vl fublu crounlants & Omsultants
INDEPENDENT AUDITOR'S REPORT
Board of Trustees
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Report on the Financial Statements
We have audited the accompanying financial statements of the governmental activities, each major fund and the
aggregate remaining fund information of the Hopkins Fire Department Relief Association (the Association) as of and for
the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the
Association's basic financial statements as listed in the table of contents.
Management's Responsibility for the Financial Statements
The Association's management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express opinions on these financial statements based on our audits. We conducted our audits in
accordance with auditing standards generally accepted in the United States of America. 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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor's judgment, including, the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the Association's preparation and fair presentation of the financial statements in
order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Association's internal control. Accordingly, we express no such opinion. An audit also
includes evaluating the appropriateness of accounting policies used and significant accounting estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
governmental activities, each major fund and the aggregate remaining fund information of the Association as of
December 31, 2017, and the results of its operations for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
5201 Eden Avenue, Suite 257
Edina, MN 55436
952,835,90aO I Fax 952.835.3261 6
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management's Discussion and
Analysis starting on page 8 and the Required Supplementary Information on pages 28 and 29 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 of America, 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.
Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the
Association's basic financial statements as a whole. The introductory section listed in the table of contents is presented for
the purposes of additional analysis and is not a required part of the basic financial statements. The introductory section
has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly,
we express no opinion or provide any assurance on it.
ABDO, EICK & MEYERS, LLP
Minneapolis, Minnesota
November 2, 2018
Heople
+ Process
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Management's Discussion and Analysis
The discussion and analysis of the Hopkins Fire Department Relief Association's (the Association) financial performance
provides an overview of the financial activities and funding conditions for the fiscal years ended December 31, 2017 and
2016.
Using the Annual Report
The financial statements, which reflect the activities of the Special Pension Trust (the Plan), are reported in the
Statements of Fiduciary Net Position (see page 16) and the Statements of Changes in Fiduciary Net Position (see page
17). These statements are presented on a full accrual basis and reflect all trust activities as incurred. The financial
statements also include activities of the General Fund, which is primarily used to account for the fund raising activities of
the Association.
Financial Highlights
• The Plan's net position increased by $464,864 (or 16.0 percent) as a result of the fiscal year's activities.
• The contributions from the State and City increased $6,739.
• Net investment income increased $274,154 (or 146.8 percent).
• Accrued pension liability, per the actuarial report, increased $149,241 (or 0.1 percent). This increase is due to
normal costs along with pension payouts of $135,785.
• The Governmental Fund balance increased $2,223 (or 15.3 percent). The fund balance of the Governmental
Fund is $16,771 at year end.
Plan Highlights
Assets
Investments
Receivables
Liabilities
Net Position
Restricted for pension benefits
Plan Net Position
December 31,
2017 2016 Change
$ 3,242,145 $ 2,895,882 $ 346,263
152,731 8,983 143,748
3,394,876 2,904,865 490,011
25,147 - 25,147
S 3.369.729 5 2.904.865 S 464,864
For the current fiscal year 2017 there is a net increase of $464,864 from the previous fiscal year 2016. The previous fiscal
year 2016 had a net increase of $173,156 from fiscal year 2015.
C
Changes in Plan Net Position
The following comparative summary of the changes in net position reflects the activities of the Plan:
Additions
Contributions
Investment income
Total Additions
Deductions
Pension benefits
Administrative expenses
Total Deductions
Net Increase in Net Position
Net Position Restricted for Pensions
Beginning of Year
End of Year
December 31,
2017 2016 Chan:. -;e
$ 143,749 $ 137,010 $ 6,739
460,846 186,692 274,154
604,595 323,702 280,893
127,545 138,785 (11,240)
12,186 11,761 425
139,731 150,546 (10,815)
464,864 173,156 291,708
2,904,865 2,731,709 173,156
3.369 729 5 2.904.865 S, 464.864
The Association's funding policy provided for contributions from the State of Minnesota (the State) and the City of Hopkins
in amounts sufficient to accumulate assets to pay benefits when due. The annual contributions are the sum of the normal
cost, the State contribution payment and the provision for administrative expenses.
Plan Membership
The following table reflects the Association's Plan membership as of the beginning and ending of the year-
Retirees
ear
Retirees and Beneficiaries Currently Receiving
Benefits and Terminated Employees Entitled
To Benefits But not Yet Receiving Them
Active Participants
Vested
Fully (20 years or more)
Partially (5 years to 19 years)
Non -vested
Total Membership
E
December 31, Increase
2017 2016 ;Decrease;
14 13 1
4
4
-
24
25
(1)
8
5
3
50
47
3
Funding Status
The amount of the total accrued pension liability is based on a standardized measurement established by the
Governmental Accounting Standards Board (GASB) that, with some exceptions, must be used by the relief associations
for financial statement presentations. This pension valuation method reflects the present value of estimated pension
benefits that will be paid in future years as a result of service years performed by the members of the Association. A
standardized measure of the accrued pension liability was adopted by GASB to enable the readers of relief association
financial statements to (a) assess the relief association's funding status on a going -concern basis, (b) assess progress
being made in accumulating sufficient assets to pay benefits when due, and (c) make comparisons among relief
associations.
Because the standardized measure is used only for disclosure purposes by the Association, the measurement is
independent of an actuarial computation made to determine contributions to the Association. The following represents the
percentage funded trend for the last three years.
Funded Percentage
$3,600,000
$3,100,000
$2,600,000
$2,100,000
$1,600,000
$1,100,000
$600,000
$100,000
2014
2015
Pension
$2,171,296
$2,280,106
Fiduciary
$2,859,363
$2,731,709
Funding
1317
119.8
- IN
2016 2017
2,429,347 2,554,829
2,904,865 3,369,729
119.6 131.9
■Pension Fiduciary
10
Asset Allocation
The following table and graph indicates the asset allocation for December 31, 2017 and 2016.
Broker Money Market
Corporate Bonds
Government Securities
Domestic Stock
Mutual Funds
Total Cash and Investments
Mutual funds_
75.5%
December 31,
2017 2016
$ 199,831
6.2 %
353,255
10.9
5,956
0.2
233,815
7.2
2,449,288
75.5
5 3.242.145
100.0 %
Asset Allocation
Broker Money
11A....L..a
$ 94,529
3.3 %
278,064
9.6
7,316
0.3
235,348
8.1
2,280,625
78.7
S 2.895.882
100.0 %
rnrnnrate bonds
19%
,.,
4
11
Domestic Stock
7.2%
Changes in Fund Balance/Net Position for Governmental Fund
The following comparative summary of the changes in fund balance reflects the activities of the Governmental Fund.
Revenues
Dues
Expenditures
Member recognition
Conventions and meetings
Dues
Flowers and memorials
Donations
Miscellaneous
Total Expenditures
Net Change In Fund Balance/Net Position
Fund Balance/Net Position, January 1
Fund Balance/Net Position, December 31
Investment Activities
December 31,
2017 2016
$ 11,840 $
12,890
7,933
11,334
86
-
263
278
278
385
660
300
397
447
9,617
12,744
2,223 146
14,548 14,402
$ 16 771 $ 14 548
Investment income is vital to the Plan's current and continued financial stability. Therefore, the Board of Trustees has a
fiduciary responsibility to act prudently and discretely when making Plan investment decisions. To assist the Board of
Trustees in this area, an investment consultant is used and Minnesota investing statutes are followed.
Portfolio performance is reviewed quarterly by the Board of Trustees and its Consultant. Performance is evaluated
individually by money manager style, collectively by investment type and for the aggregate portfolio.
The total fund investment performance for fiscal year 2017 on a relative basis to benchmarks was favorable, and the real
positive return of 14.7 percent was above the long-term net 5.0 percent target for the year. These higher returns are
viewed, at this time, to be cyclical and the 5.0 percent assumption is still deemed reasonable in the long-term. However,
as with all assumptions, it is monitored annually.
Economic Factors
The primary function of the pension trust is to (a) appropriately award and pay benefits and (b) manage investments. The
opportunity available considering various investment choices is invaluable in the asset allocation and money manager
oversight.
Contacting the Plan's Financial Management
The financial report is designed to provide citizens, taxpayers, plan participants and the marketplace's credit analysis with
an overview of the Plan's finances and the prudent exercise of the Board's oversight. If you have any questions regarding
this report or need additional financial information, please contact the Hopkins Fire Relief Association, 101 17th Avenue
South, Hopkins, Minnesota 55343.
12
BASIC FINANCIAL STATEMENTS
HOPKINS FIRE DEPARTMENT RELIEF ASSOCIATION
HOPKINS, MINNESOTA
YEAR ENDED
DECEMBER 31, 2017
13
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Governmental Fund Balance Sheet/
Statement of Net Position
December 31, 2017
Assets
Cash and cash equivalents
Fund Balance/Net Position
Unrestricted/unassigned
The notes to the financial statements are an integral part of this statement.
14
16,771
e; 16 771
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Statement of Governmental Fund Revenues, Expenditures and
Changes In Fund Balance/Statement of Activities
Year Ended December 31, 2017
Revenues
Dues
Expenditures
Member recognition
Conventions and meetings
Dues
Flowers and memorials
Donations
Miscellaneous
Total Expenditures
Net Change In Fund Balance/Net Position
Fund Balance/Net Position, January 1
Fund Balance/Net Position, December 31
$ 11,840
7,933
86
263
278
660
397
9,617
2,223
14,548
E, 16.771
The notes to the financial statements are an integral part of this statement.
15
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Statement of Fiduciary Net Position
Fiduciary Fund - Special Pension Trust Fund
December 31, 2017
Assets
Investments
Receivables
Due from other governments
Due from member
Interest
Total Assets
Liabilities
Due to other governments
Net Position
Restricted for pension benefits
$ 3,242,145
151,866
653
212
3,394,876
25,147
$ 3,369,729
The notes to the financial statements are an integral part of this statement.
16
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Statement of Changes In Fiduciary Net Position
Fiduciary Fund - Special Pension Trust Fund
Year Ended December 31, 2017
Additions
Contributions
State of Minnesota
10% supplemental reimbursement
City of Hopkins
Total Contributions
Investment earnings
Interest and dividends
Appreciation in fair value of investments
Less investment fees
Total Investment Earnings
Total Additions
Deductions
Pension benefits
Salaries
Professional fees
Bond
Total Deductions
Net Increase in Net Position
Net Position Restricted for Pensions
Beginning of Year
End of Year
The notes to the financial statements are an integral part of this statement.
17
$ 104,749
2,000
37,000
143,749
141,742
345,248
(26,144
460,846
604,595
127,545
2,000
9,862
324
139,731
464,864
2,904,865
5 3 369 729
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 1: Plan Description
A. The Financial Reporting Entity
Firefighters of the City of Hopkins (the City) are members of the Hopkins Fire Department Relief Association
(the Association). The Association is the administrator of a single -employer defined benefit pension plan (the Plan)
available to firefighters. The Plan was established in 1909 under the provisions of Minnesota Laws 1965,
Chapter 446 as amended and Minnesota statute, chapters 69 and 424. It is governed by a Board of Trustees made up of
six members elected by the members of the Association for three year terms, and the Mayor, Finance Director and Fire
Chief, who serve as ex -officio voting members of the Board of Trustees.
For financial reporting purposes, the Association's financial statements are not included with the City financial statements
because the Association is not a component unit of the City. The Association does not have any component units.
B. Membership Information
As of December 31, 2017, membership data related to the Association were:
Retirees and Beneficiaries Currently Receiving
Benefits and Terminated Employees Entitled To
Benefits But Not Yet Receiving Them 14
Active Plan Participants
Vested
Fully (20 years or more) 4
Partially (10 years to 19 years) 24
Nonvested g
Total 50
18
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 1: Plan Description (Continued)
C. Pension Benefits
The Association operates under a defined benefit plan. The pension liability is calculated by the number of active service
years multiplied by a set benefit level. The Association's current level is at $6,900 per active year. According to the bylaws
of the Association and pursuant to Minnesota statute 424A.02, subdivisions 2 and 4, members who retire with less than
20 years of service and have reached the age of 50 years and have completed at least ten years of active membership
are entitled to a reduced service pension not to exceed the amount calculated by multiplying the member's service
pension for the completed years of service times the applicable non -forfeitable percentage of pension as follows:
If a member of the Association shall become totally and permanently disabled, with a service related disability (injured in
the line of duty) to the extent that a physician or surgeon acceptable to the Board shall certify that such disability will
permanently prevent said member from performing said member's duties in the Department, the Association shall pay to
such member the sum of the current pension amount for each year and fractions of a year that the member has served as
an active member of the Department, without regard to minimum or partial vesting requirements. If a member who has
received such a disability pension should subsequently recover and return to active duty in the Department, any amount
paid to said member as a disability pension shall be deducted from said member's service pension.
Upon the death of any member of the Association who is in good standing at the time of said member's death, the
Association shall pay to the surviving spouse, if any, and if there is no surviving spouse, to child or children, if any, and if
no child or children survive, to the estate of such deceased member, the credited sum of said member's pension.
19
Non -forfeitable
Completed
Percentage
Years of
of Pension
Service
Amount
5
40 %
6
44
7
48
8
52
9
56
10
60
11
64
12
68
13
72
14
76
15
80
16
84
17
88
18
92
19
96
20 and thereafter
100
If a member of the Association shall become totally and permanently disabled, with a service related disability (injured in
the line of duty) to the extent that a physician or surgeon acceptable to the Board shall certify that such disability will
permanently prevent said member from performing said member's duties in the Department, the Association shall pay to
such member the sum of the current pension amount for each year and fractions of a year that the member has served as
an active member of the Department, without regard to minimum or partial vesting requirements. If a member who has
received such a disability pension should subsequently recover and return to active duty in the Department, any amount
paid to said member as a disability pension shall be deducted from said member's service pension.
Upon the death of any member of the Association who is in good standing at the time of said member's death, the
Association shall pay to the surviving spouse, if any, and if there is no surviving spouse, to child or children, if any, and if
no child or children survive, to the estate of such deceased member, the credited sum of said member's pension.
19
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 2: Summary of Significant Accounting Policies and Plan Asset Matters
A. Measurement Focus, Basis of Accounting and Basis of Presentation
Governmental fund financial statements are reported using the current financial resources measurement focus and the
modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available.
Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to
pay liabilities of the current period. Revenues susceptible to accrual include contributions from the State of Minnesota and
the City of Hopkins and investment revenue, including interest on deposits and dividends. Expenditures generally are
recorded when a liability is incurred, as under accrual accounting.
The fiduciary fund financial statements are reported using the economic resources measurement focus and the accrual
basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred,
regardless of the timing of related cash flows. Grants and similar items are recognized as revenue as soon as all eligibility
requirements imposed by the provider have been met.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect
the reported amounts of revenue and expense during the reporting period. Actual results could differ from those
estimates.
B. Description of Funds
The resources of the Association are accounted for in two funds. Each fund is accounted for as an independent entity.
Descriptions of the funds included in this report are:
Major Governmental Fund:
The General fund is a governmental fund that accounts for the resources not accounted for in other funds. It is used
for the good and benefit of the Association as determined by Association bylaws. Its resources consist of fundraising
proceeds, investment earnings, and miscellaneous sources.
Additionally, the Association reports the following fund type:
The Fiduciary fund accounts for assets held by the Association in a trustee capacity for its members.
The Special Pension Trust fund is a fiduciary fund for the accumulation of resources to be used for retirement,
dependency and disability annuity payments of appropriate amounts and at appropriate times in the future. Resources
are contributed by the City at amounts determined by law (taxes), and from the two -percent insurance premium tax
and amortization aid from the State of Minnesota.
20
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 2: Summary of Significant Accounting Policies and Plan Asset Matters (Continued)
C. Fund Balance
In the fund financial statements, fund balance is divided into five classifications based primarily on the extent to which the
Association is bound to observe constraints imposed upon the use of resources reported in the governmental funds.
These classifications are defined as follows:
Non -spendable - Amounts that cannot be spent because they are not in spendable form, such as prepaid items
Restricted - Amounts related to externally imposed constraints established by creditors, grantors or contributors; or
constraints imposed by state statutory provisions.
Committed - Amounts constrained for specific purposes that are internally imposed by formal action (resolution) of the
Board of Directors (the Board), which is the Association's highest level of decision-making authority. Committed
amounts cannot be used for any other purpose unless the Board modifies or rescinds the commitment by resolution.
Assigned - Amounts constrained for specific purposes that are internally imposed. In governmental funds other than
the General fund, assigned fund balance represents all remaining amounts that are not classified as non -spendable
and are neither restricted nor committed. In the General fund, assigned amounts represent intended uses established
by the Board itself or by an official to which the governing body delegates the authority.
Unassigned - The residual classification for the General fund and also negative residual amounts in other funds
The Association considers restricted amounts to be spent first when both restricted and unassigned fund balance is
available. Additionally, the Association would first use committed, then assigned, and lastly unassigned amounts of fund
balance when expenditures are made.
D. Income Taxes
The Association is a nonprofit Association described in Section 501(c) 4 of the Internal Revenue Code and is exempt from
Federal and State income taxes.
The Association has analyzed filing positions with the Internal Revenue Service and the State of Minnesota. The
Association is subject to routine audits by these jurisdictions; however, the Association is currently not under any audits
for any tax periods. The Association does not anticipate that any of its income tax filing positions would result in a
material adverse effect on the Association's financial condition, results of operations or cash flow. No liability has been
recorded for uncertain tax positions.
As allowed under accounting principles generally accepted in the United States of America, the Association would accrue,
if applicable, income tax related interest and penalties in income tax expense in the Association's statement of revenues,
expenditures and changes in fund balances. During the year ended December 31, 2017, the Association did not
recognize any interest or penalties. With few exceptions, the Association is no longer subject to tax examinations by tax
authorities for years before 2014.
21
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 3: Detailed Notes on Accounts
Cash and Cash Equivalents
The Association's cash and cash equivalents are considered to be demand deposits and short-term investments with
original maturities of three months or less from the date of acquisition.
Deposits
Custodial credit risk for deposits and investments is the risk that in the event of a bank failure, the Association's deposits
and investments may not be returned or the Association will not be able to recover collateral securities in the possession
of an outside party. In accordance with Minnesota statutes and as authorized by the Board, the Association maintains
deposits at those depository banks, all of which are members of the Federal Reserve System.
Minnesota statutes require that all Association deposits be protected by insurance, surety bond or collateral. The market
value of collateral pledged must equal 110 percent of the deposits not covered by insurance or bonds. Authorized
collateral in lieu of a corporate surety bond includes:
• United States government Treasury bills, Treasury notes, Treasury bonds;
• Issues of United States government agencies and instrumentalities as quoted by a recognized industry quotation
service available to the government entity;
• General obligation securities of any state or local government with taxing powers which is rated "A" or better by a
national bond rating service, or revenue obligation securities of any state or local government with taxing powers
which is rated "AA" or better by a national bond rating service;
• General obligation securities of a local government with taxing powers may be pledged as collateral against funds
deposited by that same local government entity;
• Irrevocable standby letters of credit issued by Federal Home Loan Banks to a municipality accompanied by
written evidence that the bank's public debt is rated "AK or better by Moody's Investors Service, Inc., or Standard
& Poor's Corporation; and
• Time deposits that are fully insured by any federal agency.
Minnesota statutes require that all collateral shall be placed in safekeeping in a restricted account at a Federal Reserve
Bank, or in an account at a trust department of a commercial bank or other financial institution that is not owned or
controlled by the financial institution furnishing the collateral. The selection should be approved by the Association.
Following is a summary of the deposits covered by FDIC insurance at December 31, 2017-
Fund
017
Fund
Governmental
22
Book Bank
5_ 16,771 S 16.771
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 3: Detailed Notes on Accounts (Continued)
Investments
The Association categorizes its fair value measurements within the fair value hierarchy established by generally accepted
accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1
inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level
3 inputs are significant unobservable inputs.
The Association has the following recurring fair value measurements as of December 31, 2017.
Credit
Segmented
Government securities
Aaa
Quality/
Time
Corporate bonds
Fair Value Measurement Using
Type of Investment Ratings 1
Distribution [27
Amount
Level 1 Level 2 Level 3
Pooled Investments At Amortized Costs:
BBB
Corporate bonds
BBB -
Broker money market N/A
less than 6 months
$ 199,831
$ - $ - $ _
Pooled Investments At Fair Value:
1 - 3 years
40,650
- 40,650 -
Mutual funds N/A
N/A
2,449,288
2,449,288 - -
Total Pooled Investments
S 2.683.103 S 359.211 S -
2,649,119
2,449,288 - -
Non -Pooled Investments At Fair Value:
Domestic stock
N/A
Government securities
Aaa
Corporate bonds
A
Corporate bonds
A -
Corporate bonds
Not rated
Corporate bonds
BBB+
Corporate bonds
BBB
Corporate bonds
BBB -
Total Non -pooled Investments
- 41,350 -
Total Investments
N/A
233,815
233,815 - -
> 3 years
5,956
- 5,956 -
> 3 years
24,969
- 24,969 -
1 - 3 years
72,275
- 72,275 -
1 - 3 years
141,023
- 141,023 -
1 - 3 years
41,350
- 41,350 -
1 - 3 years
32,988
- 32,988 -
1 - 3 years
40,650
- 40,650 -
593,026
233,815 359,211 -
5 3242.145
S 2.683.103 S 359.211 S -
(1) Ratings are provided by various credit rating agencies where applicable to indicate associated credit risk.
(2) Interest rate risk is disclosed using the segmented time distribution method.
N/A Indicates not applicable or available.
Mutual Funds of $2,449,288 are valued using closing market prices as reported by the fund. The mutual funds held by
the Association are deemed to be actively traded (Level 1 inputs).
Domestic Stocks of $233,815 are valued using closing market prices (Level 1 inputs).
Government Securities of $5,956 are valued using a matrix pricing model (Level 2 inputs).
Corporate Bonds of $353,255 are valued using a matrix pricing model (Level 2 inputs).
23
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 3: Detailed Notes on Accounts (Continued)
The Association invests funds of the Association in conformance with Minnesota State Statutes 356A.06.
The Association's investments are subject to the following risks:
• Credit Risk. Is the risk that an issuer or other counterparty to an investment will not fulfill its obligations. Ratings
are provided by various credit rating agencies and where applicable, indicate associated credit risk. Minnesota
statutes, section 11A.24, contains a specific list of asset classes available for investment, including common
stocks, bonds, short term securities, real estate, private equity, and resource funds. The statutes prescribe the
maximum percentage of fund assets that may be invested in various asset classes and contain specific
restrictions to ensure the quality of the investments.
• Custodial Credit Risk. The custodial credit risk for investments is the risk that, in the event of the failure of the
counterparty to a transaction, a government will not be able to recover the value of investment or collateral
securities that are in the possession of an outside party. The Association's investment policy does not address
custodial credit risk but typically limits its exposure by purchasing insured or registered investments.
• Concentration of Credit Risk. Is the risk of loss attributed to the magnitude of a government's investment in a
single issuer. The Association places no limit on the amount that may be invested in any one issuer.
• Interest Rate Risk. Is the risk that changes in interest rates will adversely affect the fair value of an investment.
The Association's investment policy has no limitations on length of maturity, but states that portfolio securities
shall be staggered to avoid undue concentration of assets in a specific maturity sector.
• Rate of Return. For the year ended December 31, 2017, the annual money -weighted rate of return on pension
plan investments, net of pension plan investment expense, was 7.50 percent. The money -weighted rate of return
expresses investment performance, net of investment expense, adjusted for the changing amounts actually
invested.
Note 4: Net Pension Liability
The components of the net pension liability of the Association at December 31, 2017, were as follows:
Total pension liability
Plan fiduciary net position
Net pension liability (asset)
Plan fiduciary net position as a percentage
of the total pension liability
24
$ 2,554,829
3,369,729
$ (814,900)
131.9%
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 4: Net Pension Liability (Continued)
Actuarial Assumptions. The total pension liability was determined by an actuarial valuation as of December 31, 2017,
using the following actuarial assumptions, applied to all periods included in the measurement:
Investment rate of return
Projected salary increases
Inflation rate
Cost of living increase - future annual increase to deferred pension amounts
15.9%
2.5%
N/A
4.0%
Unless otherwise specified below, all non -prescribed assumptions have been determined with input from the actuary,
even though the plan sponsor may be ultimately responsible for selecting the assumption.
All economic assumptions: Economic assumptions are based on input from a variety of published sources of historical
and projected future financial data. Each assumption was reviewed for reasonableness with
the source information as well as for consistency with the other economic assumptions.
Discount rate: Assets were projected using expected benefit payments and expected asset returns.
Expected benefit payments by year were discounted using the expected asset return
assumption for years in which the assets were sufficient to pay all benefit payments. Any
remaining benefit payments after the trust fund is exhausted are discounted at the municipal
bond rate. The equivalent single rate is the discount rate.
Expected asset return: The long-term return on assets has been set based on the plan's target investment allocation
along with long-term return expectations by asset class. When there is sufficient historical
evidence of market outperformance, historical average returns may be considered.
20 -year municipal bond yield:The municipal bond rate assumption was set by considering published rate information as of
the Measurement Date.
Cost of living increase: The annual increase to certain eligible deferred pensions is based on the investment return
on the Relief Association special fund, limited to 5.0%. As the expected return is over 5.0%,
but not guaranteed to be over 5.0% each year, an increase rate of 4.0% was selected,
reflecting the volatility of annual asset returns.
Salary increases: Used only for cost attribution. Assumed that governmental entity funding, and therefore
salaries, rise at the rate of inflation.
Inflation: The long-term inflation assumption has been chosen based on a review of historical changes
in CPI with more weight applied to recent years. Published projections of future inflation
rates were also considered.
Mortality: The value of the death benefit is similar to the value of the retirement pension. Due to a
small sample size and low retirement ages, we have assumed no pre -retirement mortality.
Post-retirement mortality does not apply as the benefit structure and form of payment do not
reflect lifetime benefits. This assumption is evaluated annually for reasonableness.
Withdrawal: The value of retirement and withdrawal benefits are similar at each retirement age. Due to a
small sample size and lack of plan subsidies, we have assumed a single retirement age
appropriate to the plan's demographic profile. This assumption is evaluated annually for
reasonableness.
25
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Notes to the Financial Statements
December 31, 2017
Note 4: Net Pension Liability (Continued)
Disability: Plan disability benefits are of similar value to other plan benefits. Therefore, disability
incidence is presumed to be included in retirement and withdrawal incidence.
Form of payment: Since the plan offers lump sums and there are no lifetime forms of payment available, we
have assumed 100% of future participants will elect the lump sum.
Sensitivity of the Net Pension Liability (Asset) to Changes in the Discount Rate
The following presents the net pension liability of the Relief Association, calculated using the discount rate of 6.25
percent, as well as what the Relief's net pension liability would be if it were calculated using a discount rate that is 1 -
percentage -point lower (5.25 percent) or 1 -percentage -point higher (7.25 percent) than the current rate:
1 % Decrease
Net Pension Liability (Asset) $ (751,467)
Discount Rate 5.25%
Note 5: Contributions Required and Contributions Made
Selected
Discount Rate
(814,900)
6.25%
1 % Increase
(874,201)
7.25%
The Association's funding policy provided for contributions from the State and the City in amounts sufficient to accumulate
sufficient assets to pay benefits when due. The annual contribution is the sum of the normal cost, the State contribution
payment and the provision for administrative expenses.
The Association is comprised of volunteers; therefore, there are no payroll expenditures or covered payroll percentage
calculations.
A required contribution of $106,749 was made by the State in accordance with Minnesota statute for the year ended
December 31, 2017 (including $2,000 for supplemental death benefit reimbursement). A voluntary contribution of $37,000
was made by the City for the year ended December 31, 2017.
Note 6: Risk Management
The Association is exposed to various risks of loss related to theft of assets for which the Association carried commercial
insurance policies. There were no significant reductions in insurance from the previous year or settlements in excess of
insurance coverage for any part of the past three fiscal years. The Association invests in mutual funds that are subject to
market value fluctuations.
Note 7: Evaluation of Subsequent Events
The Association has evaluated subsequent events through November 2, 2018, the date which the financial statements
were available to be issued.
26
REQUIRED SUPPLEMENTARY INFORMATION
HOPKINS FIRE DEPARTMENT RELIEF ASSOCIATION
HOPKINS, MINNESOTA
YEAR ENDED
DECEMBER 31, 2017
27
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Required Supplementary Information
Year Ended December 31, 2017
Schedule of Changes in the Association's Net Pension Liability (Asset) and Related Ratios
(Last 4 Fiscal Years)
Total pension liability
Service cost
Interest cost
Gain or loss
Plan changes
Changes in assumptions
Benefit payments
Net change in total pension liability
Total pension liability - beginning
Total pension liability - ending
Plan fiduciary net position
Contributions - Employer
Contributions - Nonemployer
Projected investment return
Net investment income (loss)
Benefit payments
Administrative expense
Net change in plan fiduciary net position
Plan fiduciary net position - beginning
Plan fiduciary net position - ending
Net pension liability (asset) - ending
Plan fiduciary net position as a percentage of the
total pension liability
Fiscal Year
Ending December 31,
2017 2016 2015 2014
$ 98,992
154,035
127,545
125,482
2,429,347
$ 2554.829
$ 37,000
106,749
181,680
279,166
(127,545)
(12,186)
464,864
$ 81,771
171,936
(262,107)
212,877
83,549
(138, 785;
149,241
2,280,106
$ 2.429.347
$ 32,463
104,547
204,371
(17,679)
(138,785)
X11,761)
173,156
$ 85,760
157,795
(134,745)
108,810
2,171,296
S 2.280 106
$ 32,166
214,058
(227, 350)
(134,745)
(11,783)
(127,654)
$ 77,831
139,957
(13,923)
203,865
1,967,431
$ 2171.296
$ 126,474
204,913
(127,847)
(13,923)
(12,295)
177,322
2,904,865 2,731,709 2,859,363 2,682,041
5 3.369 729 $ 2,904,865 $ 2,731,709 $ 2,859,363
814 900 $ (475,518) $ 451 603 $ {6881067)
131.9% 119.6% 119.8% 131.7%
Note: These exhibits are under GASB 67 and will be updated going forward.
28
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Required Supplementary Information (Continued)
Year Ended December 31, 2017
SCHEDULE OF CONTRIBUTIONS
(Last 4 Fiscal Years)
Fiscal Year
Endinc December 31,
2017 2016 2015 2014
Actuarially determined contribution * $ 37,000 $ 32,463 $ - $ -
Contributions in relation to the actuarially
determined contribution 37,000 32,166 32,166 36,889
Contribution deficiency (excess) - 297 ?32,166) i36,889i
* This information is also available on the Association's SC Form
Note: These exhibits are under GASB 67 and will be updated going forward.
SCHEDULE OF INVESTMENT RETURNS
(Last 4 Fiscal Years)
Fiscal Year
Ending December 31, _
2017 2016 2015 2014
Annual money -weighted rate of return, net of investment expense 15.9 6.9 -4.1% 2.8%
Note: These exhibits are under GASB 67 and will be updated going forward.
29
COMPLIANCE SECTION
HOPKINS FIRE DEPARTMENT RELIEF ASSOCIATION
HOPKINS, MINNESOTA
YEAR ENDED
DECEMBER 31, 2017
ABDO
EICK &
MEYEERS1.1.11
t �rti�ierl AdVi c Acro ultiants & Gw sllltanGs
INDEPENDENT AUDITOR'S REPORT
ON MINNESOTA LEGAL COMPLIANCE
Board of Trustees
Hopkins Fire Department Relief Association
Hopkins, Minnesota
We have audited, in accordance with auditing standards generally accepted in the United States of America, the financial
statements of the governmental activities, each major fund and the aggregate remaining fund information of the Hopkins
Fire Department Relief Association (the Association) as of and for the year ended December 31, 2017, and the related
notes to the financial statements, which collectively comprise the Association's basic financial statements, and have
issued our report thereon dated November 2, 2018.
The Minnesota Legal Compliance Audit Guide for Relief Associations, promulgated by the State Auditor pursuant to Minn.
Statute 6.65, contains two categories of compliance to be tested in audits of relief associations: deposits and
investments, and relief associations.
In connection with our audit, nothing came to our attention that caused us to believe that the Association failed to comply
with the provisions of the Minnesota Legal Compliance Audit Guide for Relief Associations, except as described in the
Schedule of Findings as item 2017-01. However, our audit was not directed primarily toward obtaining knowledge of such
noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention
regarding the Association's noncompliance with the above referenced provisions.
This report is intended solely for the information and use of those charged with governance and management of the
Association and the State Auditor, and is not intended to be and should not be used by anyone other than these specified
parties.
ABDO, EICK & MEYERS, LLP
Minneapolis, Minnesota
November 2, 2018
w
Eden Avenue, Suite 250
Edina, MN 55436 31
952.835.9090 1 Fax 952.835.3281
Hopkins Fire Department Relief Association
Hopkins, Minnesota
Schedule of Findings
Year Ended December 31, 2017
2017-1 City and State Required Contributions
Condition: During our audit we noted that the Association did not receive the minimum obligation of the
municipality and that the fire state aid was not remitted.
Criteria: In accordance with Minn Stat. 69.772, Subd. 3 and Minn. Stat. 69.031, Subd. 5, the officers of the
relief association need to verify that the minimum obligation of the municipality has been received
in the year that it is due and that the municipality has transmitted the fire state aid to the treasurer
of the relief association, within 30 days after receipt of the funds.
Cause: The officers did not monitor receipt of all required funds.
Effect: The Association is out of compliance with state statutes and would have available funds sitting
idle that should be invested.
Recommendation: It is the Boards fiduciary responsibility to be sure all funds that are required to be received have
actually been received. We recommend that two board members assume this responsibility.
32