Maricopa County, Arizona risk management and employee benefits trust funds: report on audit of financial statements ...

              MARICOPA COUNTY, ARIZONA RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Report on Audit of Financial Statements June 30, 2005

MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Report on Audit of Financial Statements June 30, 2005

Table of Contents Independent Auditors' Report Statements of Net Assets--Internal Service Funds Statements of Revenues, Expenses, and Changes in Fund Net Assets--Internal Service Funds Statements of Cash Flows--Internal Service Funds Notes to Financial Statements

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DEBRA K. DAVENPORT, CPA AUDITOR GENERAL

STATE OF ARIZONA OFFICE OF THE AUDITOR GENERAL

WILLIAM THOMSON DEPUTY AUDITOR GENERAL

Independent Auditors' Report

Members of the Arizona State Legislature The Board of Supervisors of Maricopa County, Arizona We have audited the accompanying financial statements of the Maricopa County Risk Management and Employee Benefits Trust Funds as of and for the year ended June 30, 2005, as listed in the table of contents. These financial statements are the responsibility of the County's management. Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with U.S. generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. As discussed in Note 1, the Trust Funds' financial statements are intended to present the financial position, and the changes in financial position and cash flows of only that portion of the governmental activities and aggregate remaining fund information of Maricopa County that is attributable to the Trust Funds. They do not purport to, and do not, present fairly the financial position of Maricopa County as of June 30, 2005, and the changes in its financial position and its cash flows, for the year then ended in conformity with U.S. generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Maricopa County Risk Management and Employee Benefits Trust Funds as of June 30, 2005, and the changes in its financial position and its cash flows, for the year then ended in conformity with U.S. generally accepted accounting principles. As described in Note 1, the Trust Funds implemented the provisions of Governmental Accounting Standards Board (GASB) Statement No. 40, Deposit and Investment Risk Disclosures, for the year ended June 30, 2005, which represents a change in accounting principle.

Debbie Davenport Auditor General March 24, 2006
2910 NORTH 44
th

STREET   SUITE 410   PHOENIX, ARIZONA 85018   (602) 553-0333   FAX (602) 553-0051

MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Statements of Net Assets--Internal Service Funds June 30, 2005 Risk Management Assets Current assets: Cash and cash equivalentsRisk management Environmental insurance claims recovery Employee benefits Interest receivable Accounts receivable Prepaid insurance Total current assets Noncurrent assets: Machinery and equipment Less: accumulated depreciation Total noncurrent assets Total assets Liabilities Current liabilities: Accounts payable Employee compensation payable Unearned revenue RBUC and IBNR claims Total current liabilities Noncurrent liabilities: RBUC and IBNR claims Total noncurrent liabilities Total liabilities Net Assets Invested in capital assets Unrestricted (deficit) Total net assets (deficit) Employee Benefits

$ 35,864,889 1,154,502 172,094 1,804,757 38,996,242 71,430 53,884 17,546 39,013,788 $ 22,521,849 62,073 2,720,804 1,173,867 26,478,593

26,478,593

1,117,861 108,227 20,149,947 21,376,035 30,340,604 30,340,604 51,716,639 17,546 (12,720,397) $ (12,702,851)

601,127 309,947 4,080,935 4,992,009

4,992,009

21,486,584 $ 21,486,584

See accompanying notes to financial statements. 2

MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Statements of Revenues, Expenses, and Changes in Fund Net Assets--Internal Service Funds Year Ended June 30, 2005 Risk Management $ 22,364,322 3,609,035 10,368 25,983,725 1,270,312 260,784 12,173 38,325 150,825 145,000 394,527 6,403,302 442,280 333,947 414,569 748,516 2,398,938 4,258,746 6,657,684 3,621,819 630,825 4,252,644 1,318,214 2,703,663 4,021,877 229,694 34,341 264,035 62,787 (84,206) (21,419) 13,849,111 397,720 14,246,831 13,292,425 (1,451,000) 11,841,425 Employee Benefits $ 35,773,275 6,373,968 58,216 42,205,459

Operating revenues: Charges for services County and employee premiums Intergovernmental charges Other income Total operating revenues Operating expenses: Personal services Supplies and services Accounting and auditing fees Actuary fees Consulting and management fees Brokers' fees Claims administration service fees Legal expenses Workers' compensation taxes Claims and insurance: Auto liability claims paid Auto liability RBUC and IBNR claims increase in estimate Total auto liability General liability claims paid General liability RBUC and IBNR claims increase in estimate Total general liability Workers' compensation claims paid Workers' compensation RBUC and IBNR claims increase in estimate Total workers' compensation Medical malpractice claims paid Medical malpractice RBUC and IBNR claims increase in estimate Total medical malpractice Auto physical damage claims paid Auto physical damage RBUC increase in estimate Total auto physical damage Property claims paid Property RBUC decrease in estimate Total property Pharmacy claims paid Pharmacy IBNR claims increase in estimate Total pharmacy Medical claims paid Medical RBUC and IBNR claims decrease in estimate Total medical

2,299,248

See accompanying notes to financial statements.
(Continued)

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MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Statements of Revenues, Expenses, and Changes in Fund Net Assets--Internal Service Funds Year Ended June 30, 2005 (Continued) Risk Management Dental claims paid Dental IBNR claims decrease in estimate Total dental Short-term disability claims paid Short-term disability IBNR claims increase in estimate Total short-term disability Wellness incentives paid General medical IBNR claims decrease in estimate Total general medical Unemployment claims General liability insurance premiums Workers' compensation insurance premiums Crime insurance premiums Property insurance premiums Malpractice insurance premiums Stop loss insurance premiums Depreciation Total operating expenses Operating income (loss) Nonoperating revenues: Investment income Total nonoperating revenues Income (loss) before transfers Transfers from other County funds Increase (decrease) in net assets Total net assets (deficit), July 1, 2004 Total net assets (deficit), June 30, 2005 (3,278,401) (9,424,450) $ (12,702,851) Employee Benefits $ 5,007,820 (45,000) 4,962,820 2,168,399 41,215 2,209,614 11,900 (1,150) 10,750

$

776,861 1,632,039 505,357 32,422 726,087 1,295,105 4,598 30,013,334 (4,029,609) 751,208 751,208 (3,278,401)

122,360 35,693,048 6,512,411 432,990 432,990 6,945,401 7,545,007 14,490,408 6,996,176 $ 21,486,584

See accompanying notes to financial statements. 4

MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Statements of Cash Flows--Internal Service Funds Year Ended June 30, 2005 Risk Management Cash flows from operating activities: Receipts from other funds Other receipts Payments for fees, supplies, and services Payments for insurance claims Payments for insurance premiums Payments to employees Net cash provided by operating activities Cash flows from noncapital financing activities: Cash transfers from other funds Cash flows from capital and related financing activities: Purchase of capital assets Cash flows from investing activities: Interest received on investments Net increase in cash and cash equivalents Cash and cash equivalents, July 1, 2004 Cash and cash equivalents, June 30, 2005 Reconciliation of operating income to net cash provided by operating activities: Operating income (loss) Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation Net change in RBUC and IBNR claims, noncurrent portion Changes in assets and liabilities: Increase in: Accounts receivable Prepaid insurance Accounts payable Employee compensation payable Unearned revenue RBUC and IBNR claims, current portion Decrease in: Accounts receivable Accounts payable RBUC and IBNR claims, current portion Net cash provided by operating activities $ 22,364,541 3,619,403 (7,580,318) (8,742,260) (4,289,980) (1,267,472) 4,103,914 Employee Benefits $ 34,834,643 6,742,131 (2,299,248) (35,597,324) (157,629) 3,522,573 7,545,007 (19,754) 712,623 4,796,783 32,222,608 $37,019,391 413,796 11,481,376 11,040,473 $ 22,521,849

$ (4,029,609) 4,598 3,621,540

$ 6,512,411

(98,970) 266,898 2,840 4,336,398 219 $ 4,103,914

(938,632) (35,269) 309,947

(1,267,669) (1,058,215) $ 3,522,573

See accompanying notes to financial statements.

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MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Notes to Financial Statements June 30, 2005 NOTE 1 - Summary of Significant Accounting Policies The County, in the exercise of the authority granted by Arizona Revised Statutes (A.R.S.)  11-981, has established a trust fund and declares itself self-insured. For financial statement presentation purposes, the Self-insured Trust Fund is reported as Risk Management and Employee Benefits Trust Funds (Funds) and all monies held in these Funds are considered unrestricted. The Funds' financial statements are prepared in conformity with U.S. generally accepted accounting principles applicable to governmental units adopted by the Governmental Accounting Standards Board (GASB). The Maricopa County Comprehensive Annual Financial Report for the year ended June 30, 2005, will report the Funds as governmental activities on the government-wide financial statements since they predominantly service the County's governmental funds. A summary of the Funds' more significant accounting policies follows. During the year ended June 30, 2005, the Funds implemented the provisions of GASB Statement No. 40, Deposit and Investment Risk Disclosures. GASB Statement No. 40 establishes and modifies the risk disclosures about the Trust Funds' deposits and investments. The implementation of GASB Statement No. 40 requires only additional disclosures, and had no effect on reported cash and cash equivalents, net assets, or changes in net assets. A. Reporting Entity

The Funds are accounted for as internal service funds of Maricopa County, Arizona, under the direction of an administrator appointed by the County Board of Supervisors. In addition, the Funds are administered by no less than six joint trustees, all of whom shall be citizens of the United States of America and residents of Maricopa County. The County Board of Supervisors also appoints the trustees. However, the ultimate financial accountability for the Funds remains with the County. The County is responsible for the management and operations of the financing of the uninsured risk of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; natural disasters; and for certain health benefits (pharmacy, medical, dental, short-term disability, medical incentives, and wellness incentives) to eligible employees and their dependents. B. Fund Accounting

The Funds' accounts are maintained in accordance with the principles of fund accounting to ensure that limitations and restrictions on the Funds' available resources are observed. The principles of fund accounting require that resources be classified for accounting and reporting purposes into funds in accordance with the activities or objectives specified for those resources. Each fund is considered a separate accounting entity, and its operations are
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MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Notes to Financial Statements June 30, 2005 accounted for in a separate set of self-balancing accounts that comprises its assets, liabilities, net assets, revenues, and expenses. The Funds' financial transactions are recorded and reported as internal service funds since their operations are financed and operated in a manner similar to private business enterprises. The intent of the County Board of Supervisors is that the costs (expenses, including depreciation) of providing goods or services to other departments within the County on a continuing basis be financed or recovered primarily through user charges. C. Basis of Presentation and Accounting

The financial statements include statements of net assets; statements of revenues, expenses, and changes in fund net assets; and statements of cash flows. The statements of net assets provide information about the assets, liabilities, and net assets of the Funds at the end of the year. Assets and liabilities are classified as either current or noncurrent. Net assets are classified according to the availability of assets to satisfy the Funds' obligations. Invested in capital assets represents the value of capital assets, net of accumulated depreciation. Unrestricted net assets represent the balance of monies held in the Funds. The statements of revenues, expenses, and changes in fund net assets provide information about the Funds' financial activities during the year. Revenues and expenses are classified as either operating or nonoperating, and all changes in net assets are reported. Generally, charges for services and insurance premiums are considered to be operating revenues. Other revenues such as investment income are not generated from operations and are considered to be nonoperating revenues. The cost of services, administrative expenses, and depreciation on capital assets are considered to be operating expenses. The statements of cash flows provide information about the Funds' sources and uses of cash and cash equivalents during the year. Increases and decreases in cash and cash equivalents are classified as either operating, noncapital financing, capital financing, or investing. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied, and determines when revenues and expenses are recognized in the accounts and reported in the financial statements. The financial statements of the Funds are presented on the accrual basis of accounting using the economic resources measurement focus. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place.

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MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Notes to Financial Statements June 30, 2005 The Funds apply only those applicable Financial Accounting Standards Board Statements and Interpretations issued on or before November 30, 1989, Accounting Principles Board Opinions, and Accounting Research Bulletins, unless those pronouncements conflict with GASB pronouncements. The Funds have chosen the option not to follow FASB Statements and Interpretations issued after November 30, 1989. D. Cash and Cash Equivalents

For purposes of the statements of cash flows, the Funds consider cash on hand, demand deposits, cash on deposit with the County Treasurer, and only those highly liquid investments with a maturity of 3 months or less when purchased to be cash equivalents. E. Machinery and Equipment

Machinery and equipment are capitalized at cost. Depreciation of machinery and equipment is charged as an expense against operations. These assets are depreciated over their estimated useful lives using the straight-line method. The estimated useful lives of machinery and equipment range from 3 to 10 years. F. Employee Compensation Payable

Employee compensation payable consists of payroll and payroll-related costs incurred but not paid at June 30, and personal time off (PTO) earned by employees based on services already rendered. Employees may accumulate up to 240 hours of PTO, but any PTO hours in excess of the maximum amount that are unused at calendar year-end will be transferred to family medical leave (FML). FML benefits are used by employees for FML-qualifying events and are cumulative but do not vest with employees and, therefore, are not accrued. However, upon retirement, employees of the Funds with accumulated FML in excess of 1,000 hours are entitled to a $3,000 bonus. The amount of such bonuses is accrued in the liability for employee compensation payable. NOTE 2 - Deposits and Investments Arizona Revised Statutes (A.R.S.) authorize the Funds to invest public monies in the State Treasurer's investment pool; obligations issued or guaranteed by the United States or any of the senior debt of its agencies, sponsored agencies, corporations, sponsored corporations, or instrumentalities; specified state and local government bonds; interest earning investments such as savings accounts, certificates of deposit, and repurchase agreements in eligible depositories; and specified commercial paper, bonds, debentures, and notes issued by corporations organized and doing business in the United States. In addition, the County
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MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Notes to Financial Statements June 30, 2005 Treasurer may invest trust funds in fixed income securities of corporations doing business in the United States or District of Columbia. Credit risk Statutes have the following requirements for credit risk: 1. Commercial paper must be rated P1 by Moody's investors service or A1 or better by Standard and Poor's rating service. 2. Corporate bonds, debentures, and notes must be rated A or better by Moody's investors service or Standard and Poor's rating service. 3. Fixed income securities must carry one of the two highest ratings by Moody's investors service and Standard and Poor's rating service. If only one of the above-mentioned services rates the security, it must carry the highest rating of that service. Custodial credit risk Statutes require collateral for demand deposits, certificates of deposit, and repurchase agreements at 101 percent of all deposits not covered by federal depository insurance. Interest rate risk Statutes require that public monies invested in securities and deposits have a maximum maturity of 5 years and that public operating fund monies invested in securities and deposits have a maximum maturity of 3 years. Investments in repurchase agreements must have a maximum maturity of 180 days. Deposits--At June 30, 2005, the carrying amount of the Funds' deposits was $9,888,209, and the bank balance was $10,084,342. The Funds follow the County's policies requiring collateralization of all deposits by at least 101% of the deposits not covered by depository insurance. At a minimum, the collateral is to be held by the pledging financial institution or its agent, but does not have to be held in the County's name. At June 30, 2005, the Funds' bank balance was uninsured with collateral held by the pledging financial institution in the County's name. The deposits pertain totally to the Employee Benefits Trust Fund. Investments--The Funds' investments at June 30, 2005, consisted of monies invested in the Maricopa County Treasurer's Investment Pool. The Funds' investments in the pool represent a portion of the County Treasurer's pool portfolio. There is no oversight provided for the County Treasurer's investment pool, and the pool's structure does not provide for shares. The Funds' portion in the pool is not identified with specific investments. Credit Risk--The Funds follow the County's policy to preserve the principal value and the interest income of an investment. The County can invest in obligations issued or guaranteed
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MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Notes to Financial Statements June 30, 2005 by the United States or any of the senior debt of its agencies, sponsored agencies, corporations, or instrumentalities. The County can also invest in commercial paper and corporate bonds with ratings that meet the statutory requirements specified above. At June 30, 2005, the Funds' investments consisted of monies invested in the Maricopa County Treasurer's Investment Pool which is unrated. Interest rate risk--It is the County's policy to hold investments to maturity, where practical, and avoid any loss on investments resulting from an early sale or retirement of an investment. Additionally, securities should be invested for a shorter duration, where applicable. At June 30, 2005, the Funds had investments of $49,652,931 in the Maricopa County Treasurer's Investment Pool with a weighted average maturity of 440 days. A reconciliation of cash, deposits, and investments to amounts shown on the Statements of Net Assets follows: Cash, deposits, and investments: Cash on hand Amount of deposits County Treasurer's Investment Pool Total NOTE 3 - Liabilities for Unpaid Claims The Funds provide for claims liabilities based on estimates of the ultimate cost of claims, including future claims adjustment expenses, that have been reported but unpaid (RBUC), and of claims that have been incurred but not reported (IBNR). The County is liable for any single claim up to the insurance deductible or self-insurance retention (SIR), whichever is applicable, and the excess over insurance limits. 100 9,888,209 49,652,931 $59,541,240 $

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MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Notes to Financial Statements June 30, 2005 The following insurance deductibles, self-insurance retentions, and insurance limits were in effect during fiscal year 2004-05: Policy Type General and auto liability Excess general and auto liability Property/inland marine Boiler and machinery Earthquake Flood zones except A and V Flood zone A and V Difference in conditions Employee theft Faithful performance of duty Theft and robbery Computer and wire transfer fraud Forgery alteration/property Workers' compensation Employer's liability Medical malpractice Excess medical malpractice Deductible $ $ 100,000 100,000 100,000 500,000 500,000 primary 100,000 100,000 10,000 100,000 10,000 1,000,000 5,000,000 primary SIR 5,000,000 primary $ Limit 5,000,000 25,000,000 200,000,000 50,000,000 100,000,000 25,000,000 10,000,000 40,000,000 10,000,000 1,000,000 1,000,000 10,000,000 1,000,000 25,000,000 1,000,000 15,000,000 10,000,000

Settled claims have not exceeded the above commercial insurance coverage limits over the past 3 years. Risk Management Trust Fund Liabilities for unpaid claims are estimates of the ultimate cost of claims that include the insurance deductible, the SIR, and the excess over insurance limits. The estimates are determined by an independent actuary using the following actuarial methods: reported loss development, paid loss development, Bornhuetter-Ferguson reported loss and paid loss, frequency times severity, case outstanding loss development, expected loss, incremental paid-workers' compensation, paid allocated loss adjustment expense to paid loss development, and tail liability for medical malpractice. Total liabilities are equal to the sum of: 1. Reported but unpaid claims (RBUC), which represent the estimated liability on reported claims established by the Risk Management department and

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MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Notes to Financial Statements June 30, 2005 2. Incurred but not reported (IBNR) reserves, which include known loss events that are expected to become claims and expected future development on claims already reported. Therefore, IBNR is largely an estimate of loss and claim adjustment expenses associated with future likely claims activity based on historical actual results that establish a reliable pattern. Accrued actuarial liabilities are based on a discounted 55 percent confidence level assuming a 3.0 percent annual rate of return on investments. The total liabilities reported at June 30, 2005, categorized by RBUC and IBNR by insurable area follow: Auto liability General liability Workers' compensation Medical malpractice Auto physical damage Property Total $ RBUC 348,312 19,035,507 7,999,414 5,902,484 166,284 281,302 $ IBNR 518,215 6,737,997 2,044,906 7,456,130 Total Liabilities $ 866,527 25,773,504 10,044,320 13,358,614 166,284 281,302 $ 50,490,551

The total estimates of unpaid claim liabilities of $50,490,551 at June 30, 2005, increased by $7,957,938 from last year's balance of $42,532,613. The areas that significantly increased were general liability and medical malpractice. Changes in the liabilities for unpaid auto, general, workers' compensation, medical malpractice, auto physical damage, and property claims follow: Current-Year Claims and Changes in Estimates $ 5,907,531 8,992,628 15,923,337

Balance July 1 2002-03 2003-04 2004-05 $ 41,677,379 41,047,771 42,532,613

Claims Payments $ (6,537,139) (7,507,786) (7,965,399)

Balance June 30 $ 41,047,771 42,532,613 50,490,551

Of these liabilities, $20,149,947 were actuarially estimated to be paid within the next 12 months.

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MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Notes to Financial Statements June 30, 2005

Employee Benefits Trust Fund The liability for pharmacy (Coinsurance Plan), medical, dental, and short-term disability claims as shown below is based on the fiscal year 2004-05 actuarial reports. The Consumer Choice Plan portion of the liability for pharmacy is based on the unused portion of the members' pharmacy accounts administered by Walgreens Health Initiatives. The liability for medical incentives as shown below is based on the contract with CIGNA HealthCare. Accrued liabilities at June 30, 2005, for each insurable area follow: Pharmacy Medical Dental Short-term disability Medical incentives Total $ 692,720 2,117,000 455,000 216,215 600,000 $ 4,080,935

Changes in the liabilities for unpaid pharmacy, medical, dental, short-term disability, and medical incentives claims follow: Current-Year Claims and Changes in Estimates $ 13,182,511 24,840,807 33,271,440

Balance July 1 2002-03 2003-04 2004-05 $ 794,084 2,446,904 5,139,150

Claims Payments $ (11,529,691) (22,148,561) (34,329,655)

Balance June 30 $ 2,446,904 5,139,150 4,080,935

It is estimated that the June 30, 2005, liabilities balance of $4,080,935 will be paid within the next 12 months. NOTE 4 - Net Assets Deficit The County Board of Supervisors elected not to fund the Risk Management Trust Fund's unpaid claims in fiscal years 1995-96 through 1998-99. Consequently, the Risk Management Trust Fund only billed user departments for operating costs and administrative expenses for those years. This resulted in a total net assets deficit of $23,321,519 at June 30, 1999. Starting July 1, 1999, Risk Management began billing user departments for actuarially
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MARICOPA COUNTY RISK MANAGEMENT AND EMPLOYEE BENEFITS TRUST FUNDS Notes to Financial Statements June 30, 2005 determined claim estimates that are projected to be paid each fiscal year. As of June 30, 2005, the total net assets deficit has been reduced to $12,702,851. NOTE 5 - Letter of Credit On July 1, 2004, the County renewed its workers' compensation insurance with a selfinsured retention of $1,000,000. As a result, the Industrial Commission of Arizona required the County to secure an irrevocable letter of credit in the amount of $8.5 million with a financial institution to cover unfunded workers' compensation claims. During fiscal year 2004-05, the letter of credit had not been drawn upon. The letter of credit was renewed to July 1, 2006. NOTE 6 - Retirement Plan Plan Description--The Risk Management Fund contributes to a cost-sharing multipleemployer defined benefit pension plan administered by the Arizona State Retirement System (ASRS). Benefits are established by state statute and generally provide retirement, death, long-term disability, survivor, and health insurance premium benefits. The System is governed by the Arizona State Retirement System Board according to the provisions of A.R.S. Title 38, Chapter 5, Article 2. The System issues a comprehensive annual financial report that includes financial statements and required supplementary information. The most recent report may be obtained by writing the ASRS, 3300 North Central Avenue, P.O. Box 33910, Phoenix, AZ 85067-3910 or by calling (602) 240-2000 or (800) 621-3778. Funding Policy--The Arizona State Legislature establishes and may amend active plan members' and the Risk Management Fund's contribution rates. For the year ended June 30, 2005, active plan members and the Risk Management Fund were each required by statute to contribute at the actuarially determined rate of 5.7 percent (5.2 percent retirement and 0.5 percent long-term disability) of the members' annual covered payroll. The Risk Management Fund's contributions to the System for the years ended June 30, 2005, 2004, and 2003 were $56,705, $54,687, and $22,894, respectively, which were equal to the required contributions for the year.

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