| 2012 | 2011 | |
|---|---|---|
| Assets | ||
| Current assets: | ||
| Cash | $53,965,151 | $73,592,126 |
| Accounts receivable - net | 2,437,241 | 5,433,087 |
| Prepaid expenses and other assets | 4,518,080 | 3,338,770 |
| Total current assets | 60,920,472 | 82,363,983 |
| Noncurrent assets: | ||
| Property, equipment, and software - net | 186,703,851 | 181,903,601 |
| Other assets | 1,081,446 | 476,795 |
| Total noncurrent assets | 187,785,297 | 182,380,396 |
| Total | $248,705,769 | $264,744,379 |
| Liabilities and cumulative results of operations | ||
| Current liabilities: | ||
| Accounts payable and accrued liabilities | $16,181,003 | $25,686,787 |
| Accrued payroll and related taxes | 20,907,437 | 18,616,534 |
| Accrued annual leave | 29,218,663 | 27,281,750 |
| Capital lease payable | 456,896 | 237,479 |
| Unearned revenues and other liabilities | 617,787 | 872,868 |
| Total current liabilities | 67,381,786 | 72,695,418 |
| Long-term liabilities: | ||
| Capital lease payable | 1,069,116 | - |
| Retirement benefit obligation | 33,740,310 | 27,485,712 |
| Postretirement benefit obligation | 13,249,648 | 11,799,079 |
| Postemployment benefit obligation | 10,695,165 | 11,145,144 |
| Other long-term liabilities | 21,261,795 | 20,261,325 |
| Total long-term liabilities | 80,016,034 | 70,691,260 |
| Total liabilities | 147,397,820 | 143,386,678 |
| Cumulative results of operations: | ||
| Fund balance | 119,140,439 | 138,451,243 |
| Accumulated other comprehensive income (loss) | (17,832,490) | (17,093,542) |
| Total cumulative results of operations | 101,307,949 | 121,357,701 |
| Total | $ 248,705,769 | $264,744,379 |
See notes to financial statements.
| 2012 | 2011 | |
|---|---|---|
| Board operating revenues: | ||
| Assessments levied on Federal Reserve Banks for Board operating expenses and capital expenditures | $ 490,000,000 | $ 472,300,000 |
| Other revenues | 9,793,604 | 6,555,903 |
| Total operating revenues | 499,793,604 | 478,855,903 |
| Board operating expenses: | ||
| Salaries | 299,889,043 | 274,866,723 |
| Retirement, insurance, and benefits | 70,232,938 | 61,516,094 |
| Contractual services and professional fees | 50,873,548 | 37,486,707 |
| Depreciation, amortization, and net gains or losses on disposals | 21,969,729 | 19,496,451 |
| Travel | 15,068,161 | 14,583,555 |
| Postage, supplies, and non-capital furniture and equipment | 11,256,753 | 10,760,230 |
| Utilities | 9,016,693 | 8,736,997 |
| Software | 10,967,296 | 9,399,273 |
| Rentals of space | 14,120,215 | 6,401,350 |
| Repairs and maintenance | 5,696,326 | 4,774,395 |
| Printing and binding | 2,126,056 | 2,345,881 |
| Other expenses | 7,887,650 | 8,510,962 |
| Total operating expenses | 519,104,408 | 458,878,618 |
| Net income (loss) | (19,310,804) | 19,977,285 |
| Currency costs: | ||
| Assessments levied or to be levied on Federal Reserve Banks for currency costs | 721,074,064 | 650,010,597 |
| Expenses for costs related to currency | 721,074,064 | 650,010,597 |
| Currency assessments over (under) expenses | - | - |
| Bureau of Consumer Financial Protection (Bureau): | ||
| Assessments levied on the Federal Reserve Banks for the Bureau | 385,200,000 | 241,711,564 |
| Transfers to the Bureau | 385,200,000 | 241,711,564 |
| Bureau assessments over (under) transfers | - | - |
| Office of Financial Research (Office): | ||
| Assessments levied on the Federal Reserve Banks for the Office | 2,078,298 | 40,000,000 |
| Transfers to the Office | 2,078,298 | 40,000,000 |
| Office assessments over (under) transfers | - | - |
| Total net income (loss) | (19,310,804) | 19,977,285 |
| Other comprehensive income: | ||
| Amortization of prior service (credit) cost | 584,890 | 507,786 |
| Amortization of net actuarial (gain) loss | 1,659,956 | 653,874 |
| Net actuarial gain (loss) arising during the year | (2,983,794) | (3,627,680) |
| Total other comprehensive income (loss) | (738,948) | (2,466,020) |
| Comprehensive income (loss) | (20,049,752) | 17,511,265 |
| Cumulative results of operations - beginning of year | 121,357,701 | 103,846,436 |
| Cumulative results of operations - end of year | $101,307,949 | $121,357,701 |
See notes to financial statements
| 2012 | 2011 | |
|---|---|---|
| Cash flows from operating activities: | ||
| Net income (loss) | $(19,310,804) | $ 19,977,285 |
| Adjustments to reconcile results of operations to net cash provided by (used in) operating activities: | ||
| Depreciation and amortization | 21,901,984 | 19,015,100 |
| Net loss (gain) on disposal of property and equipment | 67,745 | 481,351 |
| Other additional non-cash adjustments to results of operations | 492,739 | 351,867 |
| (Increase) decrease in assets: | ||
| Accounts receivable, prepaid expenses and other assets | 1,211,886 | (2,780,003) |
| Increase (decrease) in liabilities: | ||
| Accounts payable and accrued liabilities | (6,317,712) | 5,340,020 |
| Accrued payroll and related taxes | 2,290,903 | (3,277,502) |
| Accrued annual leave | 1,936,913 | 944,560 |
| Unearned revenues and other liabilities | (255,081) | 316,022 |
| Net retirement benefit obligation | 6,363,414 | 4,128,953 |
| Net postretirement benefit obligation | 602,805 | 490,927 |
| Net postemployment benefit obligation | (449,979) | (2,668,110) |
| Other long-term liabilities | 437,509 | 298,191 |
| Net cash provided by (used in) operating activities | 8,972,322 | 42,618,661 |
| Cash flows from investing activities: | ||
| Capital expenditures | (28,057,137) | (23,585,868) |
| Net cash provided by (used in) investing activities | (28,057,137) | (23,585,868) |
| Cash flows from financing activities: | ||
| Capital lease payments | (542,160) | (583,299) |
| Net cash provided by (used in) financing activities | (542,160) | (583,299) |
| Net increase (decrease) in cash | (19,626,975) | 18,449,494 |
| Cash balance - beginning of year | 73,592,126 | 55,142,632 |
| Cash balance - end of year | $ 53,965,151 | $ 73,592,126 |
See notes to financial statements.
The Federal Reserve System (the System) was established by Congress in 1913 and consists of the Board of Governors (the Board), the Federal Open Market Committee, the twelve regional Federal Reserve Banks (Reserve Banks), the Federal Advisory Council, and the private commercial banks that are members of the System. The Board, unlike the Reserve Banks, was established as a federal government agency and is located in Washington, D.C.
The Board is required by the Federal Reserve Act (the Act) to report its operations to the Speaker of the House of Representatives. The Act also requires the Board, each year, to order a financial audit of each Reserve Bank and to publish each week a statement of the financial condition of each Reserve Bank and a combined statement for all of the Reserve Banks. Accordingly, the Board believes that the best financial disclosure consistent with law is achieved by issuing separate financial statements for the Board and for the Reserve Banks. Therefore, the accompanying financial statements include only the results of operations and activities of the Board. Combined financial statements for the Reserve Banks are included in the Board's annual report to the Speaker of the House of Representatives and weekly statements are available on the Board's website.
The Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010 (Dodd-Frank Act) established the Bureau of Consumer Financial Protection (Bureau) as an independent bureau within the System and designated the Board's Office of Inspector General (OIG) as the OIG for the Bureau. As required by the Dodd-Frank Act, the Board transferred certain responsibilities to the Bureau in July 2011. The Dodd-Frank Act requires the Board to fund the Bureau from the combined earnings of the System. The Dodd-Frank Act also created the Financial Stability Oversight Council (FSOC) of which the Chairman of the Board is a member, as well as the Office of Financial Research (Office) within the U.S. Department of Treasury to provide support to the FSOC and the member agencies. The Dodd-Frank Act required that the Board provide funding for the FSOC and the Office until July 2012. Section 1017 of the Dodd-Frank Act provides that the financial statements of the Bureau are not to be consolidated with those of the Board or the System; the Board has also determined that neither the FSOC nor the Office should be consolidated in the Board's financial statements. Accordingly, the Board's financial statements do not include financial data of the Bureau, the FSOC, or the Office other than the funding that the Board is required by the Dodd-Frank Act to provide.
The Board's responsibilities require thorough analysis of domestic and international financial and economic developments. The Board carries out those responsibilities in conjunction with the Reserve Banks and the Federal Open Market Committee. The Board also supervises the operations of the Reserve Banks and exercises broad responsibility in the nation's payments system. Policy regarding open market operations is established by the Federal Open Market Committee. However, the Board has sole authority over changes in reserve requirements, and it must approve any change in the discount rate initiated by a Reserve Bank. The Board also plays a major role in the supervision and regulation of the U.S. banking system. It has supervisory responsibilities for state-chartered banks that are members of the System, bank holding companies, savings and loan holding companies, foreign activities of member banks, U.S. activities of foreign banks, and any systemically important nonbank financial company that are designated by the FSOC. Although the Dodd-Frank Act gave the Bureau general rule-writing responsibility for Federal consumer financial laws, the Board retains rule-writing responsibility under the Community Reinvestment Act and other specific statutory provisions. The Board also enforces the requirements of Federal consumer financial laws for state member banks with assets of $10 billion or less. In addition, the Board enforces certain other consumer laws at all state member banks, regardless of size.
Section 318(c) of the Dodd-Frank Act requires that the Board shall collect a total amount of assessments, fees, or other charges, from certain companies (large bank holding companies and savings and loan holding companies with total consolidated assets of $50 billion or more and systemically important nonbank financial companies designated by the FSOC) that is equal to the total expenses the Board estimates are necessary or appropriate to carry out the supervisory and regulatory responsibilities of the Board with respect to such companies. As of December 31, 2012, the Board has not issued rulemaking regarding this new responsibility, and currently does not anticipate finalizing any such rulemaking until later in 2013. As such, sufficient information is not available to determine a reasonable estimate of the fees that it may eventually collect and transfer to the U.S. Treasury.
Basis of Accounting — The Board prepares its financial statements in accordance with accounting principles generally accepted in the United States (GAAP).
Revenues — The Federal Reserve Act authorizes the Board to levy an assessment on the Reserve Banks to fund its operations. The Board allocates the assessment to each Reserve Bank based on the Reserve Bank's capital and surplus balances.
Assessments to Fund the Bureau and the Office — The Board assesses the Reserve Banks for the funds transferred to the Bureau and the Office based on each Reserve Bank's capital and surplus balances. These assessments and transfers are reported separately from the Board's operating activities in the Board's Statements of Operations.
Civil Money Penalties — The Board has enforcement authority over the financial institutions it supervises and their affiliated parties, including the authority to assess civil money penalties. As directed by statute, all civil money penalties that are assessed and collected by the Board are remitted to either the Department of Treasury (Treasury) or the Federal Emergency Management Agency (FEMA). As a collecting entity, the Board does not recognize civil money penalties as revenue nor does the Board use the civil money penalty to fund Board expenses. Civil money penalties whose collection is contingent upon fulfillment of certain conditions in the enforcement action are not recorded in the Board's financial records. Checks for civil money penalties made payable to the National Flood Insurance Program are forwarded to FEMA and are not recorded in the Board's financial records.
Currency Costs — The Board issues the nation's currency (in the form of Federal Reserve notes), and the Reserve Banks distribute currency and coin through depository institutions. The Board incurs expenses and assesses the Reserve Banks for the expenses related to producing, issuing, and retiring Federal Reserve notes as well as providing educational services. The assessment is allocated based on each Reserve Bank's share of the number of notes comprising the System's net liability for Federal Reserve notes on December 31 of the prior year. These expenses and assessments are reported separately from the Board's operating activities in the Board's Statements of Operations.
Allowance for Doubtful Accounts — Accounts receivable are shown net of the allowance for doubtful accounts. Accounts receivable considered uncollectible are charged against the allowance account in the year they are deemed uncollectible. The allowance for doubtful accounts is adjusted monthly, based upon a review of outstanding receivables. The allowance for doubtful accounts is $30,000 and $112,000 for 2012 and 2011, respectively.
Property, Equipment, and Software — The Board's property, equipment, and software are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the assets, which range from three to ten years for furniture and equipment, ten to fifty years for building equipment and structures, and two to ten years for software. Upon the sale or other disposition of a depreciable asset, the cost and related accumulated depreciation or amortization are removed and any gain or loss is recognized. Construction in process includes costs incurred for short-term and long-term projects that have not been placed into service. The majority of the balance represents long-term building enhancement projects.
Art Collections — The Board has collections of works of art, historical treasures, and similar assets. These collections are maintained and held for public exhibition in furtherance of public service. Proceeds from any sales of collections are used to acquire other items for collections. The cost of collections purchased by the Board is charged to expense in the year purchased and donated collection items are not recorded. The value of the Board's collections has not been determined.
Deferred Rent — Leases for certain space contain scheduled rent increases over the term of the lease. Rent abatements, lease incentives, and scheduled rent increases must be considered in determining the annual rent expense to be recognized. The deferred rent represents the difference between the actual lease payments and the rent expense recognized. Lease incentives impact deferred rent, and are non-cash transactions, and discussed in the leases footnote.
Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards — In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which requires a reporting entity to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update eliminates the option to present the components of other comprehensive income as part of the statement of shareholders' equity. The update is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items by presenting the components reported in other comprehensive income. The Board has adopted the update in this ASU effective for the year ended December 31, 2012, and the required presentation is reflected in the Board's financial statements.
In December 2011, the FASB issued ASU 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This update indefinitely defers the requirements of ASU 2011-05 related to presentation of reclassification adjustments from accumulated other comprehensive income. When effective, this update will affect the classification of these adjustments in the Statements of Operations.
In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective net income line items. This update is effective for the Board for the year ending December 31, 2013, and will be reflected in the Board's 2013 financial statements.
The following is a summary of the components of the Board's property, equipment, and software, at cost, net of accumulated depreciation and amortization as of December 31, 2012 and 2011:
| 2012 | 2011 | |
|---|---|---|
| Land | $ 18,640,314 | $ 18,640,314 |
| Buildings and improvements | 205,006,985 | 195,869,546 |
| Construction in process | 14,362,523 | 13,952,693 |
| Furniture and equipment | 74,519,266 | 66,604,104 |
| Software in use | 29,147,933 | 27,091,292 |
| Software in process | 2,422,381 | 1,384,526 |
| Vehicles | 960,745 | 521,419 |
| Other intangible asset | 496,675 | 496,675 |
| Subtotal | 345,556,822 | 324,560,569 |
| Less accumulated depreciation and amortization | (158,852,971) | (142,656,968) |
| Property, equipment, and software - net | $ 186,703,851 | $ 181,903,601 |
Capital Leases—The Board entered into capital leases for copier equipment in 2008 and 2009 that terminated in March 2012. The Board subsequently entered into new capital leases in 2012. Under the new commitments, the capital lease term extends through 2016. Furniture and equipment includes capitalized leases of $1,853,000 and $2,086,000 in 2012 and 2011, respectively. Accumulated depreciation includes $337,000 and $1,852,000 related to assets under capital leases as of 2012 and 2011, respectively. The depreciation expense for the leased equipment is $471,000 and $533,000 for 2012 and 2011, respectively.
The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of December 31, 2012, are as follows:
| Years Ended December 31, | Amount |
|---|---|
| 2013 | $711,659 |
| 2014 | 711,659 |
| 2015 | 711,659 |
| 2016 | 192,799 |
| Total minimum lease payments | 2,327,776 |
| Less amount representing maintenance | (754,555) |
| Net minimum lease payments | 1,573,221 |
| Less amount representing interest | (47,209) |
| Present value of net minimum lease payments | 1,526,012 |
| Less current maturities of capital lease payments | (456,896) |
| Long-term capital lease obligations | $1,069,116 |
Operating Leases—The Board has entered into several operating leases to secure office, training, and warehouse space. Minimum annual payments under the multi-year operating leases having an initial or remaining non-cancelable lease term in excess of one year at December 31, 2012, are as follows:
| Years Ending December 31, | |
|---|---|
| 2013 | $14,555,834 |
| 2014 | 14,918,629 |
| 2015 | 15,360,855 |
| 2016 | 15,744,650 |
| After 2016 | 71,438,299 |
| $132,018,267 | |
Rental expenses under the multi-year operating leases were $13,553,000 and $6,093,000 for the years ended December 31, 2012 and 2011, respectively. The Board entered into two new operating leases in early 2013. The estimated future minimum lease payments associated with the new leases total $109,337,000 over a ten year period, which is not reflected in the schedule above.
The Board leases and subleases space, primarily to other governmental agencies. The revenues collected for these leases from governmental agencies were $480,000 in both 2012 and 2011.
Deferred Rent—Other long-term liabilities include deferred rent of $20,924,000 and $19,733,000 as of the years ended December 31, 2012 and 2011, respectively. The 2012 ending balance includes non-cash lease incentives of $563,000.
Substantially all of the Board's employees participate in the Retirement Plan for Employees of the Federal Reserve System (the System Plan). The System Plan provides retirement benefits to employees of the Board, the Reserve Banks, the Office of Employee Benefits of the Federal Reserve System (OEB), and certain employees of the Bureau. The Reserve Bank of New York (FRBNY), on behalf of the System, recognizes the net assets and costs associated with the System Plan in its financial statements. Costs associated with the System Plan were not redistributed to the Board during the year ended December 31, 2012 and 2011.
Employees of the Board who became employed prior to 1984 are covered by a contributory defined benefits program under the System Plan. Employees of the Board who became employed after 1983 are covered by a non-contributory defined benefits program under the System Plan. FRBNY, on behalf of the System, funded $780 million and $420 million during the years ended December 31, 2012 and 2011, respectively. The Board was not assessed a contribution for 2012 and 2011.
Board employees covered under the System Plan are also covered under a Benefits Equalization Plan (BEP). Benefits paid under the BEP are limited to those benefits that cannot be paid from the System Plan due to limitations imposed by the Internal Revenue Code. Activity for the BEP as of December 31, 2012 and 2011, is summarized in the following tables:
| 2012 | 2011 | |
|---|---|---|
| Change in projected benefit obligation: | ||
| Benefit obligation - beginning of year | $14,147,186 | $11,933,435 |
| Service cost | 2,100,366 | 1,456,457 |
| Interest cost | 867,002 | 602,381 |
| Plan participants' contributions | - | - |
| Actuarial (gain) loss | (1,928,409) | 567,091 |
| Gross benefits paid | (33,312) | (35,438) |
| Transfers to the Bureau | - | (376,740) |
| Benefit obligation - end of year | $ 15,152,833 | $ 14,147,186 |
| Accumulated benefit obligation - end of year | $ 3,149,276 | $ 2,351,832 |
| Weighted-average assumptions used to determine benefit obligation as of December 31: | ||
| Discount rate | 4.25 % | 4.50 % |
| Rate of compensation increase | 4.50 % | 5.00 % |
| Change in plan assets: | ||
| Fair value of plan assets - beginning of year | $- | $- |
| Employer contributions | 33,312 | 35,438 |
| Plan participants' contributions | - | - |
| Gross benefits paid | (33,312) | (35,438) |
| Fair value of plan assets - end of year | $- | $- |
| Funded status: | ||
| Reconciliation of funded status - end of year: | ||
| Fair value of plan assets | $- | $- |
| Benefit obligation | 15,152,833 | 14,147,186 |
| Funded status | (15,152,833) | (14,147,186) |
| Amount recognized - end of year | $ (15,152,833) | $ (14,147,186) |
| Amounts recognized in the statements of financial position consist of: | ||
| Asset | $- | $- |
| Liability | (15,152,833) | (14,147,186) |
| Net amount recognized | $ (15,152,833) | $ (14,147,186) |
| Amounts recognized in accumulated other comprehensive income consist of: | ||
| Net actuarial loss (gain) | $2,939,609 | $5,535,793 |
| Prior service cost (credit) | 620,967 | 699,952 |
| Net amount recognized | $ 3,560,576 | $ 6,235,745 |
| Expected cash flows: | |
| Expected employer contributions—2013 | $137,203 |
| Expected benefit payments: ** | |
| 2013 | $137,203 |
| 2014 | 164,275 |
| 2015 | 186,654 |
| 2016 | 212,730 |
| 2017 | 225,868 |
| 2018–2022 | 1,623,583 |
** Expected benefit payments to be made by the Board.
| 2012 | 2011 | |
|---|---|---|
| Components of net periodic benefit cost: | ||
| Service cost | $2,100,366 | $1,456,457 |
| Interest cost | 867,002 | 602,381 |
| Expected return on plan assets | - | - |
| Amortization: | ||
| Actuarial (gain) loss | $ 667,775 | $230,468 |
| Prior service (credit) cost | 78,985 | 1,881 |
| Net periodic benefit cost (credit) | $ 3,714,128 | $ 2,291,187 |
| Weighted-average assumptions used to determine net periodic benefit cost: | ||
| Discount rate | 4.50 % | 5.50 % |
| Rate of compensation increase | 5.00 % | 5.00 % |
| Other changes in plan assets and benefit obligations recognized in other comprehensive income: | ||
| Current year actuarial (gain) loss | $(1,928,409) | $190,351 |
| Amortization of prior service credit (cost) | (78,985) | (1,881) |
| Amortization of actuarial gain (loss) | (667,775) | (230,468) |
| Total recognized in other comprehensive (income) loss | $ (2,675,169) | $ (41,998) |
| Total recognized in net periodic benefit cost and other comprehensive income | $ 1,038,959 | $ 2,249,189 |
Estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost (credit) in 2013 are shown below:
| Net actuarial (gain) loss | $36,979 |
| Prior service (credit) cost | 99,779 |
| Total | $136,758 |
The Board also provides another non-qualified plan for Officers of the Board. The retirement benefits covered under the Pension Enhancement Plan (PEP) increase the pension benefit calculation from 1.8% above the Social Security integration level to 2.0%. Activity for the PEP as of December 31, 2012 and 2011, is summarized in the following tables:
| 2012 | 2011 | |
|---|---|---|
| Change in projected benefit obligation: | ||
| Benefit obligation - beginning of year | $13,250,209 | $9,949,637 |
| Service cost | 684,473 | 489,236 |
| Interest cost | 750,474 | 589,888 |
| Plan participants' contributions | - | - |
| Actuarial (gain) loss | 3,856,673 | 2,401,971 |
| Gross benefits paid | (101,099) | (57,124) |
| Transfers to the Bureau | - | (123,399) |
| Benefit obligation - end of year | $18,440,730 | $13,250,209 |
| Accumulated benefit obligation - end of year | $14,766,590 | $10,000,174 |
| Weighted-average assumptions used to determine benefit obligation as of December 31: | ||
| Discount rate | 4.00 % | 4.50 % |
| Rate of compensation increase | 4.50 % | 5.00 % |
| Change in plan assets: | ||
| Fair value of plan assets - beginning of year | $ - | $ - |
| Employer contributions | 101,099 | 57,124 |
| Plan participants' contributions | - | - |
| Gross benefits paid | (101,099) | (57,124) |
| Fair value of plan assets - end of year | $ - | $ - |
| Funded status: | ||
| Reconciliation of funded status - end of year: | ||
| Fair value of plan assets | $ - | $ - |
| Benefit obligation | 18,440,730 | 13,250,209 |
| Funded status | (18,440,730) | (13,250,209) |
| Amount recognized - end of year | $ (18,440,730) | $ (13,250,209) |
| Amounts recognized in the statements of financial position consist of: | ||
| Asset | $ - | $ - |
| Liability | (18,440,730) | (13,250,209) |
| Net amount recognized | $(18,440,730) | $ (13,250,209) |
| Amounts recognized in accumulated other comprehensive income consist of: | ||
| Net actuarial loss (gain) | $8,514,540 | $5,416,792 |
| Prior service cost (credit) | 2,180,488 | 2,711,883 |
| Net amount recognized | $10,695,028 | $8,128,675 |
| Expected cash flows: | |
| Expected employer contributions—2013 | $ 162,055 |
| Expected benefit payments: * | |
| 2013 | $162,055 |
| 2014 | $234,218 |
| 2015 | $311,695 |
| 2016 | $392,185 |
| 2017 | $478,316 |
| 2018–2022 | $3,813,305 |
* Expected benefit payments to be made by the Board. Return to table
| 2012 | 2011 | |
|---|---|---|
| Components of net periodic benefit cost: | ||
| Service cost | $684,473 | $489,236 |
| Interest cost | 750,474 | 589,888 |
| Expected return on plan assets | - | - |
| Amortization: | ||
| Actuarial (gain) loss | 758,925 | 327,639 |
| Prior service (credit) cost | 531,395 | 531,395 |
| Net periodic benefit cost (credit) | $2,725,267 | $1,938,158 |
| Weighted-average assumptions used to determine net periodic benefit cost: | ||
| Discount rate | 4.50 % | 5.50 % |
| Rate of compensation increase | 5.00 % | 5.00 % |
| Other changes in plan assets and benefit obligations recognized in other comprehensive income: | ||
| Current year actuarial (gain) loss | $3,856,673 | $2,278,572 |
| Amortization of prior service credit (cost) | (531,395) | (531,395) |
| Amortization of actuarial gain (loss) | (758,925) | (327,639) |
| Total recognized in other comprehensive (income) loss | $2,566,353 | $1,419,538 |
| Total recognized in net periodic benefit cost and other comprehensive income | $5,291,620 | $3,357,696 |
Estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost (credit) in 2013 are shown below:
| Net actuarial (gain) loss | $757,959 |
| Prior service (credit) cost | 531,395 |
| Total | $1,289,354 |
The total accumulated retirement benefit obligation includes a liability for a supplemental retirement agreement and a benefits equalization plan under the Federal Reserve System's Thrift Plan. The total obligation as of December 31, 2012 and 2011, is summarized in the following table:
| 2012 | 2011 | |
|---|---|---|
| Retirement benefit obligation: | ||
| Benefit obligation - BEP | $ 15,152,833 | $ 14,147,186 |
| Benefit obligation - PEP | 18,440,730 | 13,250,209 |
| Additional benefit obligations | 146,747 | 88,317 |
| Total accumulated retirement benefit obligation | $33,740,310 | $27,485,712 |
A relatively small number of Board employees participate in the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS). These defined benefit plans are administered by the U.S. Office of Personnel Management, which determines the required employer contribution levels. The Board's contributions to these plans totaled $586,000 and $523,000 in 2012 and 2011, respectively. The Board has no liability for future payments to retirees under these programs and is not accountable for the assets of the plans.
Employees of the Board may also participate in the Federal Reserve System's Thrift Plan or Roth 401(k). Board contributions to members' accounts were $19,211,000 and $17,699,000 in 2012 and 2011, respectively.
The Board provides certain life insurance programs for its active employees and retirees. Activity as of December 31, 2012 and 2011, is summarized in the following tables:
| 2012 | 2011 | |
|---|---|---|
| Change in benefit obligation: | ||
| Benefit obligation - beginning of year | $11,799,079 | $10,219,672 |
| Service cost | 210,030 | 186,268 |
| Interest cost | 534,224 | 529,161 |
| Plan participants' contributions | - | - |
| Actuarial (gain) loss | 1,055,530 | 1,158,757 |
| Gross benefits paid | (349,215) | (294,779) |
| Benefit obligation - end of year | $13,249,648 | $11,799,079 |
| Weighted-average assumptions used to determine benefit obligation as of December 31 - discount rate | 4.00 % | 4.50 % |
| Change in plan assets: | ||
| Fair value of plan assets - beginning of year | $- | $- |
| Employer contributions | 349,215 | 294,779 |
| Gross benefits paid | (349,215) | (294,779) |
| Fair value of plan assets - end of year | $- | $- |
| Funded status: | ||
| Reconciliation of funded status - end of year: | ||
| Fair value of plan assets | $- | $- |
| Benefit obligation | 13,249,648 | 11,799,079 |
| Funded status | (13,249,648) | (11,799,079) |
| Amount recognized - end of year | $(13,249,648) | $(11,799,079) |
| Amounts recognized in the statements of financial position consist of: | ||
| Asset | $- | $- |
| Liability | (13,249,648) | (11,799,079) |
| Net amount recognized | $(13,249,648) | $(11,799,079) |
| Amounts recognized in accumulated other comprehensive income consist of: | ||
| Net actuarial loss (gain) | $3,802,439 | $2,980,166 |
| Prior service cost (credit) | (225,554) | (251,044) |
| Net amount recognized | $3,576,885 | $2,729,122 |
| Expected cash flows: | |
| Expected employer contributions—2013 | $372,355 |
| Expected benefit payments: * | |
| 2013 | $372,355 |
| 2014 | 402,603 |
| 2015 | 430,068 |
| 2016 | 460,866 |
| 2017 | 491,282 |
| 2018–2022 | 2,837,643 |
*. Expected benefit payments to be made by the Board. Return to table
| 2012 | 2011 | |
|---|---|---|
| Components of net periodic benefit cost: | ||
| Service cost | $210,030 | $186,268 |
| Interest cost | 534,224 | 529,161 |
| Expected return on plan assets | - | - |
| Amortization: | ||
| Actuarial (gain) loss | 233,256 | 95,767 |
| Prior service (credit) cost | (25,490) | (25,490) |
| Net periodic benefit cost (credit) | $952,020 | $785,706 |
| Weighted-average assumptions used to determine net periodic benefit cost - discount rate | 4.50 % | 5.25 % |
| Other changes in plan assets and benefit obligations recognized in other comprehensive income: | ||
| Current year actuarial (gain) loss | $1,055,530 | $1,158,757 |
| Amortization of prior service credit (cost) | 25,490 | 25,490 |
| Amortization of actuarial gain (loss) | (233,256) | (95,767) |
| Total recognized in other comprehensive (income) loss | $847,764 | $1,088,480 |
| Total recognized in net periodic benefit cost and other comprehensive income | $1,799,784 | $1,874,186 |
Estimated amounts that will be amortized from accumulated other comprehensive income into net periodic benefit cost (credit) in 2013 are shown below:
| Net actuarial (gain) loss | $313,301 |
| Prior service (credit) cost | (25,490) |
| Total | $287,811 |
The Board provides certain postemployment benefits to eligible former or inactive employees and their dependents during the period subsequent to employment but prior to retirement. Postemployment costs were actuarially determined using a December 31 measurement date and discount rates of 2.50% and 2.25% as of December 31, 2012 and 2011, respectively. The net periodic postemployment benefit cost (credit) recognized by the Board as of December 31, 2012 and 2011, were $518,000 and ($1,606,000), respectively.
A reconciliation of beginning and ending balances of accumulated other comprehensive income (loss) for the years ended December 31, 2012 and 2011, is as follows:
| Amount Related to Defined Benefit Retirement Plans | Amount Related to Postretirement Benefits Other Than Pensions | Total Accumulated Other Comprehensive Income (Loss) | |
|---|---|---|---|
| Balance - January 1, 2011 | $(12,986,880) | $(1,640,642) | $(14,627,522) |
| Change in funded status of benefit plans: | |||
| Amortization of prior service (credit) costs | 533,276 | (25,490) | 507,786 |
| Amortization of net actuarial (gain) loss | 558,107 | 95,767 | 653,874 |
| Net actuarial gain (loss) arising during the year | (2,468,923) | (1,158,757) | (3,627,680) |
| Change in funded status of benefit plans - other comprehensive income (loss) | (1,377,540) | (1,088,480) | (2,466,020) |
| Balance - December 31, 2011 | (14,364,420) | (2,729,122) | (17,093,542) |
| Change in funded status of benefit plans: | |||
| Amortization of prior service (credit) costs | 610,380 | (25,490) | 584,890 |
| Amortization of net actuarial (gain) loss | 1,426,700 | 233,256 | 1,659,956 |
| Net actuarial gain (loss) arising during the year | (1,928,264) | (1,055,530) | (2,983,794) |
| Change in funded status of benefit plans - other comprehensive income (loss) | 108,816 | (847,764) | (738,948) |
| Balance - December 31, 2012 | $(14,255,604) | $(3,576,886) | $(17,832,490) |
Additional detail regarding the classification of accumulated other comprehensive income (loss) is included in Notes 6 and 7.
The Board performs certain functions for the Reserve Banks in conjunction with its responsibilities for the System, and the Reserve Banks provide certain administrative functions for the Board. The Board assesses the Reserve Banks for its operating expenses, to include expenses related to its currency responsibilities, as well as for the funding the Board is required to provide to the Bureau and the Office. Activity related to the Board and Reserve Banks is summarized in the following table:
| 2012 | 2011 | |
|---|---|---|
| For the years ended December 31: | ||
| Assessments levied or to be levied on Federal Reserve Banks for: | ||
| Currency expenses | $721,074,064 | $650,010,597 |
| Board operations | 490,000,000 | 472,300,000 |
| Transfers of funds to the Bureau | 385,200,000 | 241,711,564 |
| Transfers of funds to the Office | 2,078,298 | 40,000,000 |
| Total assessments levied or to be levied on Federal Reserve Banks | $1,598,352,362 | $1,404,022,161 |
| Board expenses charged to the Federal Reserve Banks for data processing | $423,209 | $406,421 |
| Federal Reserve Bank expenses charged to the Board: | ||
| Data processing and communication | $1,313,902 | $788,910 |
| Contingency site | 1,191,220 | 1,211,362 |
| Total Federal Reserve Bank expenses charged to the Board | $2,505,122 | $2,000,272 |
| Net transactions with Federal Reserve Banks | $1,596,270,449 | $1,402,428,310 |
| As of the years ended December 31: | ||
| Accounts receivable due from the Federal Reserve Banks | $751,614 | $2,501,565 |
| Accounts payable due to the Federal Reserve Banks | $334,665 | $16,358 |
The Board contracted for audit services on behalf of entities that are included in the combined financial statements of the Reserve Banks. The entities reimburse the Board for the cost of the audit services. The Board accrued liabilities of $185,000 and $293,000 in audit services and recorded net receivables of $170,000 and $500,000 from the entities as of December 31, 2012 and 2011, respectively. In 2013, the Board also entered into lease arrangements with the Reserve Banks related to space needs for the OIG and the Board's data center.
The OEB administers certain System benefit programs on behalf of the Board and the Reserve Banks, and costs associated with the OEB's activities are assessed to the Board and Reserve Banks. The Board was assessed $2,530,000 and $2,596,000 for the years ended December 31, 2012 and 2011, respectively.
The Board is one of the five member agencies of the Federal Financial Institutions Examination Council (the Council), and currently performs certain management functions for the Council. The five agencies that are represented on the Council are the Board, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and the Bureau.
The Board's financial statements do not include financial data for the Council. Activity related to the Board and Council, is summarized in the following table:
| 2012 | 2011 | |
|---|---|---|
| For the years ended December 31: | ||
| Council expenses charged to the Board: | ||
| Assessments for operating expenses | $137,466 | $137,421 |
| Assessments for examiner education | 1,043,917 | 810,459 |
| Central Data Repository | 1,111,793 | 1,113,255 |
| Home Mortgage Disclosure Act/Community Reinvestment Act | 753,464 | 702,482 |
| Uniform Bank Performance Report | 132,294 | 117,215 |
| Total Council expenses charged to the Board | $3,178,934 | $2,880,832 |
| Board expenses charged to the Council: | ||
| Data processing related services | $4,392,625 | $4,164,479 |
| Administrative services | 261,000 | 281,000 |
| Total Board expenses charged to the Council | $4,653,625 | $4,445,479 |
| As of the years ended December 31: | ||
| Accounts receivable due from the Council | $545,770 | $494,234 |
| Accounts payable due to the Council | $211,061 | $132,539 |
Beginning July 2011, section 1017 of the Dodd-Frank Act requires the Board to fund the Bureau from the combined earnings of the System, in an amount determined by the Director of the Bureau to be reasonably necessary to carry out the authorities of the Bureau under Federal consumer financial law, taking into account such other sums made available to the Bureau from the preceding year (or quarter of such year). The Dodd-Frank Act limits the amount to be transferred each fiscal year to a fixed percentage of the System's total operating expenses. The Board received and processed funding requests for the Bureau totaling $385,200,000 and $241,711,564 during calendar years 2012 and 2011, respectively. During 2012, the Bureau transferred $3 million to the Board related to funding the operations of the OIG.
As part of the transfer of responsibilities from the Board to the Bureau, certain Board staff were transferred to the Bureau during 2011. The Board continued to administer certain non-retirement benefits for all transferred Board employees through July 20, 2012.
Section 155(c) of the Dodd-Frank Act requires the Board to provide an amount sufficient to cover the expenses of the Office for the two-year period following the date of the enactment (July 21, 2010). The expenses of the FSOC are included in the expenses of the Office. The Board received and processed funding requests for the Office totaling $42,000,000 and $40,000,000 during 2012 and 2011, respectively. At the end of the two-year period in 2012, the Office returned $39,921,702 to the Board which was returned to the Reserve Banks.
The Bureau of Engraving and Printing (BEP) is the sole supplier for currency printing and also provides currency retirement services. The Board provides or contracts for other services associated with currency, such as shipping, education, and quality assurance. The currency costs incurred by the Board for the years ended December 31, 2012 and 2011, are reflected in the following table:
| 2012 | 2011 | |
|---|---|---|
| Expenses related to BEP services: | ||
| Printing | $687,704,624 | $623,214,300 |
| Retirement | 3,132,105 | 3,475,244 |
| Subtotal related to BEP services | $690,836,729 | $626,689,544 |
| Other currency expenses: | ||
| Shipping | $17,179,610 | $15,728,046 |
| Research and development | 5,316,005 | 4,486,525 |
| Quality assurance services | 7,259,900 | 2,992,053 |
| Education services | 481,820 | 114,429 |
| Subtotal other currency expenses | $30,237,335 | $23,321,053 |
| Total currency expenses | $721,074,064 | $650,010,597 |
Commitments — The Board has entered into an agreement with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, through the Council, to fund a portion of the enhancements and maintenance fees for a central data repository project that requires maintenance through 2013. The estimated Board expense to support this effort is $845,000 for the remaining option period.
Litigation and Contingent Liabilities — The Board is subject to contingent liabilities which arise from litigation cases and various business contracts. These contingent liabilities arise in the normal course of operations and their ultimate disposition is unknown. Based on information currently available to management, it is management's opinion that the expected outcome of these matters, in the aggregate, will not have a material adverse effect on the financial statements.
There were no subsequent events that require adjustments to or disclosures in the financial statements as of December 31, 2012. Subsequent events were evaluated through March 5, 2013, which is the date the financial statements were available to be issued.
