20
Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016, and Twelve Months Ended March 31, 2016

401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

  • Upload
    others

  • View
    13

  • Download
    0

Embed Size (px)

Citation preview

Page 1: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority401 (k) Plan

Financial Statements

As of and for the Nine Months EndedDec. 31, 2016, and Twelve Months Ended March 31, 2016

Page 2: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Contents

Independent Auditor's Report 1

Management's Discussion and Analysis (Unaudited) 3

Financial statements

Statements of Plan Net Position 6

Statements of Changes in Plan Net Position 7

Notes to the Financial Statements 8

Page 3: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

RSMRSM US LLP

Independent Auditor's Report 811 Barton Springs Rd^Of

Austin, TX 78704

To the LCRA Retirement Benefits Board of Trustees T +1 512 476 0717Lower Colorado River Authority 401 k PlanAustin, Texas ' www.rsmus.corn

Report on the Financial StatementsWe have audited the accompanying statement of plan net position of the Lower Colorado River AuthorityRetirement 401 k Plan (the Plan) as of December 31 , 2016, the related statement of changes in plan netposition for the nine-month period (period) then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements inaccordance with accounting principles generally accepted in the United States of America; this includesthe design, implementation and maintenance of internal control relevant to the preparation and fairpresentation of financial statements that are free from material misstatement, whether due to fraud orerror.

Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe financial statements. The procedures selected depend on the auditor's judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity'spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluatingthe appropriateness of accounting policies used and the reasonableness of significant accountingestimates made by management, as well as evaluating the overall presentation of the financialstatements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the netposition of the Plan as of December 31, 2016, and the changes in Plan net position for the period thenended, in accordance with accounting principles generally accepted in the United States of America.

THE POWER OF BEING UNDERSTOODAUDlTi'TAXlCONSULi'ING

Page 4: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Other MattersThe LCRA Retirement Benefits Board of Trustees voted to change Plan's fiscal year-end from March 31to December 31 on September 21, 2016. The Plan financial statements reflect activity of the Plan for thenine month period ended December 31, 2016.

The financial statements of the Plan as of and for the year ended March 31, 2016, were audited by otherauditors, whose report dated September 16, 2016, expressed an unmodified opinion on those statements.

Required Supplementary InformationAccounting principles generally accepted in the United States of America require the Management'sDiscussion and Analysis (Unaudited) be presented to supplement the basic financial statements. Suchinformation, although not a part of the basic financial statements, is required by the GovernmentalAccounting Standards Board, who considers it to be an essential part of financial reporting for placing thebasic financial statements in an appropriate operational, economic or historical context. We have appliedcertain limited procedures to the required supplementary information in accordance with auditingstandards generally accepted in the United States of America, which consisted of inquiries ofmanagement about the methods of preparing the information and comparing the information forconsistency with management's responses to our inquiries, the financial statements, and other knowledgewe obtained during our audit of the financial statements. We do not express an opinion or provide anyassurance on the information because the limited procedures do not provide us with sufficient evidence toexpress an opinion or provide any assurance.

^^ ^ ^x^Austin, TexasAugust 2,2017

Page 5: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Management's Discussion and Analysis (Unaudited)Dec. 31, 2016, and March 31,2016(Dollars in Thousands)

This section of the Lower Colorado River Authority's (LCRA) 401 (k) Plan (Plan) financial reportpresents our discussion and analysis of the Plan's financial performance for the nine monthperiod (period) ended Dec. 31, 2016, and twelve months (year) ended March 31, 2016. TheLCRA Retirement Benefits Board of Trustees voted to change Plan's fiscal year-end from March31 to Dec. 31 on Sept. 21, 2016. This change resulted in a nine month period. The readershould consider the information presented here in conjunction with the financial statements thatfollow.

Overview of the Financial Statements

This discussion and analysis is intended to serve as an introduction to the Plan's financialstatements, which comprise the following:

Statements of Plan Net Position—present the assets and liabilities of the Plan for the currentperiod and prior year. Assets are stated affair value and, accordingly, unrealized appreciationand depreciation are reported in the statements of changes in plan net position. Purchase andsale of investments are recorded on a trade-date basis and, accordingly, the related receivableand payable for any unsettled trades are recorded. Amounts reported may includemanagement's estimates. Actual results could differ from those estimates.

Statements of Changes in Plan Net Position—present information showing how the Plan's netposition changed during the current period. Changes are reported when the underlying eventgiving rise to the change occurs, regardless of the timing of the related cash flows. Revenuesand expenses are reported in these statements for some items that will only result in cash flowsin future periods.

Notes to Financial Statements—include a summary of significant accounting policies; a briefdescription of the Plan; disclosures regarding liabilities, investments and administrativeexpenses; which are deemed necessary for a full understanding of the data provided in thePlan's financial statements.

Collectively, this information presents the net position held in trust for Plan benefits as of the endof each period and summarizes the changes in net position for the period.

Financial Highlights

Plan net position held in trust by the Plan increased by approximately $13.0 million, or 6.8percent, in for the period ended Dec. 31, 2016 and decreased by approximately $6.7 million, or3.4 percent for the year ended March 31, 2016. A stronger market performance in the secondhalf of 2016 compared to the lower investment earnings for the year ended March 31, 2016 isthe primary reason for this change.

Contributions decreased by approximately $1.9 million, or 10.8 percent, for the period endedDec. 31, 2016 and increased by approximately $2.1 million, or 13.6 percent, for the year ended

Page 6: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Management's Discussion and Analysis (Unaudited)Dec. 31, 2016, and March 31,2016(Dollars in Thousands)

March 31, 2016. The decrease in contributions for the period ended Dec. 31, 2016 was causedprimarily by the change to the plan year-end, which reflects only nine months of activity.

Contributions for the year ended March 31, 2016 were increased by the impact of an across theboard 4.0 percent merit increase implemented in October 2015 and an increase in activeparticipants to the Plan.

The amount of benefits paid to retired members, beneficiaries and terminating employeesdecreased by approximately $7.9 million, or 34.8 percent, during the period ended Dec. 31,2016 and increased approximately $7.5 million, or 49.7 percent, for the year ended March 31 ,2016. The decrease in benefit payments for the period ended Dec. 31, 2016 was causedprimarily by the change to the plan year-end, which reflects only nine months of activity. Theincrease for the year ended March 31, 2016 can be primarily attributed to higher levels ofretirements and terminations.

Financial Analysis

Net position information as of Dec. 31, 2016, and March 31, 2016, and 2015, is as follows:

(Dollars in Thousands) Dec.31,

2016March 31,

2016March 31,

2015Assets

Investments—at fair value

Loans to participantsTotal assets

$199,0066,271

205,277

$185,7186,53£

192,253

$192,2176,735

198,952Liabilities

Total liabilitiesPlan net position held in trust for plan benefits $205,277 $192,253 $198,952

Participant loan activity remains at a high volume, with 192 new loans for the period ended Dec.31, 2016, and 268 new loans for year ended March 31, 2016. The total number of loansoutstanding was 761 as of Dec. 31, 2016,and 772 as of March 31, 2016. The decrease in newloan activity, net of repayment of loans, resulted in the $0.3 million decrease in loan balancesfrom March 31, 2016, to Dec. 31, 2016.

Total investments were approximately $199.0 million as of Dec. 31, 2016, an increase ofapproximately $13.3 million, or 7.2 percent, for the period ended Dec. 31, 2016. Totalinvestments as of March 31, 2016 were approximately $185.7 million, a decrease ofapproximately $6.5 million, or 3.4 percent, from March 31, 2015.

Changes in the Plan's net position information for the period ended Dec. 31, 2016, and yearsended March 31, 2016, and 2015, are as follows:

Page 7: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Management's Discussion and Analysis (Unaudited)Dec. 31, 2016, and March 31,2016(Dollars in Thousands)

(Dollars in Thousands) Nine Months

EndedDec. 31,

2016

12 Months

Ended

IVIarch31,2016

12 MonthsEnded

March 31,

2015Additions

ContributionsInvestment income and interest income on loansreceivable from participants

Total additions

$15,791

12,054

27,845

$17,696

(1,658)16,038

$15,575

14,847

30,422

Deductions

Benefit paymentsGeneral, administrative and other expenses (credits)

Total deductions

Net (decrease) increase

14,8147

14,821

13,024

22,7325

22,737

(6,699)

15,190

(133)15,057

15,365

fSSBSSoSSs^SiS?mn9!W^arl>siti(

m'92,2S3J;;$2d5;27%

;1:9Si9@2||l$1'92,253li

IMSSi!$'t9&,95^

Additions: Funds to pay benefits are accumulated through contributions and returns oninvested funds. Employer and employee contributions for the period ended Dec. 31, 2016 andthe year ended March 31 , 2016 totaled approximately $1 5.8 million and $17.7 million,respectively. The contributions decreased by approximately $1.9 million and increased byapproximately $2.1 million for the period ended Dec. 31 , 2016 and the year ended March 31,2016, respectively. Investment income and interest income on loans receivable generated atotal increase in investment income for the period ended Dec. 31, 2016 of approximately $13.7million compared to the year ended March 31, 2016.

Deductions: The expenses paid by the Plan include benefit payments and administrativeexpenses. Benefits paid to retirees and terminating employees for the period ended Dec. 31,2016 were approximately $14.8 million, a 34.8 percent decrease from the year ended March 31,2016. The decrease in benefit payments for the period ended Dec. 31, 2016 was causedprimarily by the change to the plan year-end, which reflects only nine months of activity.Approximately 90 participants terminated employment during the period ended Dec. 31,2016 ascompared to 75 participant terminations during the year ended March 31,2016.

Overall AnalysisAs of Dec. 31, 2016, plan net position increased by approximately $13.0 million, or 6.8 percent,from the year ended March 31, 2016. This net increase in plan net position was due to strongerfinancial market performance in the second half of 2016, which resulted in greater investmentincome for the period ended Dec. 31, 2016 and a significant decrease in benefits paid toparticipants for the period.

Request for InformationThis financial report is designed to provide a general overview of the finances of the LowerColorado River Authority's 401 (k) Plan for all parties with an interest. Questions concerning anyof the information provided in this report or requests for additional financial information shouldbe addressed to Retirement Benefits Administrator, The Lower Colorado River Authority, 3700Lake Austin Boulevard, Austin, Texas 78703.

Page 8: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Statements of Plan Net PositionDec. 31, 2016, and March 31,2016(Dollars in Thousands)

Assets:

Investment—at fair value

Loans to participants

Plan net position held in trust for plan benefits

Dec. 31,

2016

$199,0066,271

$205,277

March 31,2016

$185,7186,535

$192,253

/Votes to the financial statements form an integral part of these statements.

6

Page 9: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Statements of Changes in Plan Net PositionFor the Nine Months Ended Dec.31, 2016, and the Twelve Months Ended March 31, 2016(Dollars in Thousands)

Dec. 31, March 31,2016 2016

Additions:Investment income (loss):Net appreciation (depreciation) on investmentsInterest and dividends

Total investment income (loss)

Interest income on loans receivable from participants

Contributions:ParticipantsEmployerRollovers

Total contributions

Total additions

Deductions:Benefits paid to participantsAdministrative expenses net of trustee credits

Total deductions

Net increase (decrease)

Plan net position held in trust for plan benefits at beginning of period

Plan net position held in trust for plan benefits at end of period

$5,8635,933

11,796

258

8,9444,5502,297

15,791

27,845

(14,814)SDL

(14,821)

13,024

192,253

$205,277

($10,025)8,023

(2,002)

344

10,8555,2841,557

17,696

16,038

(22,732)_(5L

(22,737)

(6,699)

198,952

$192,253

Notes to the financial statements form an integral part of these statements.7

Page 10: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Notes to the Financial StatementsDec. 31, 2016, and March 31, 2016(Dollars in Thousands)

Note 1. Plan Description

The following description of the Lower Colorado River Authority (LCRA) 401 (k) Plan (Plan)provides only general information. Participants should refer to the Plan agreement for a morecomplete description of the Plan's provisions.

General: The Plan is a single-employer defined contribution plan sponsored by LCRA andadministered by the LCRA Retirement Benefits Board of Trustees (Board). The Board hasseven members: two LCRA Board members, two employees from upper-management positionsand three employees from positions other than upper management. The LCRA Board ofDirectors has sole authority to amend the Plan. Employees of LCRA are eligible to participate inthe Plan immediately upon employment. As of Dec. 31, 2016, and March 31 , 2016, 1,777 and1,912 employees, respectively, were eligible to participate in the Plan, and 1,589 and 1,698employees, respectively, were actively participating in the Plan.

Contributions: Participants may elect to contribute from 1.0 percent of eligible compensationup to the maximum allowed annual contribution as prescribed in Internal Revenue Code (IRC)Section 402(g)(4). Participants who fail to submit the proper election as of the Participant'sDeemed Election Date are deemed to have made an election to contribute 8.0 percent ofeligible compensation. Participants who have attained age 50 before the end of the Plan yearare eligible to make catch-up contributions. Participants also may contribute amountsrepresenting distributions from other qualified defined benefit or defined contribution plans.

LCRA contributes 25.0 percent of the first 4.0 percent of compensation for employees who wereemployed prior to Jan. 1, 2002, and did not elect to participate in the cash balance feature.LCRA contributes 100.0 percent of the first 4.0 percent of compensation and 50.0 percent of thenext 2.0 percent of compensation, as defined in the Plan, for employees who were employedprior to Jan. 1, 2002, and elected to participate in the cash balance feature of the LCRARetirement Plan and Trust, as well as those participants employed after Jan. 1, 2002.Contributions for employees hired after May 1, 2012, shall be 100.0 percent of the first 8.0percent of compensation. Contributions are subject to certain limitations.

Effective Jan. 1, 2008, participants can elect to contribute on a pretax basis, an after-tax basis,or a combination of the two.

Participant accounts: Participants direct the investment of their contributions into variousinvestment options offered by the Plan.

Each participant's account is credited with the participant's contribution and allocations ofLCRA's contributions and Plan earnings, and charged with an allocation of administrativeexpenses. Allocations are based on participant earnings or account balances, as defined. Thebenefit to which a participant is entitled is the benefit that can be provided from the participant'svested account.

Page 11: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Notes to the Financial StatementsDec. 31, 2016, and March 31,2016(Dollars in Thousands)

Note 1. Plan Description (Continued)

Vesting: Participants employed prior to May 1, 2012, are 100.0 percent vested in their voluntarycontributions and employer contributions. Effective May 1, 2012, a participant whose period ofservice begins on or after May 1, 2012, is 100.0 percent vested in their voluntary contributionsat the date of contribution. However, a participant whose period of service begins on or after

May 1,2012, is vested in his or her employer matching contributions in accordance with thefollowing schedule:

Years of Vesting Service

Fewer than three yearsThree or more years

VestedPercentage

0.0%

100.0%

Notes receivable from participants: Participants may borrow from their fund accounts aminimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50.0 percent of theirvested account balance. The loans are secured by the balance in the participant's account andbear interest, as determined by the Plan administrator. Principal and interest are paid throughpayroll deductions.

Notes receivable from participants are measured at their unpaid principal balance plus accruedbut unpaid interest. Interest income is recorded on the accrual basis. Related fees are recordedas administrative expenses and are expensed when they are incurred. If a participant ceases tomake loan repayments and the Plan administrator deems the participant loan to be in default,the participant loan balance is reduced, and a benefit payment is recorded.

Payment of benefits: On termination of service or age 591/2, a participant may elect to receivea distribution up to the value of the participant's vested interest in his or her account. Anybalance under $1,000 is automatically paid out as soon as administratively possible. Hardshipwithdrawals also are available for active employees subject to certain limitations.

Administrative expenses: Administrative expenses may be paid by either the Plan sponsor orthe Plan, as provided by the Plan document. Loan administration fees are paid by theparticipant electing the loan.

Forfeitures: Beginning May 1, 2012, participant forfeitures ofnonvested balances may be usedto reduce future employer contributions. During the period ended Dec. 31, 2016, employercontributions were reduced by $0. 1 million and at Dec. 31, 2016 there were $0.3 million inunallocated forfeitures. During the March 31, 2016, plan year, employer contributions were notreduced by forfeited nonvested accounts.

Page 12: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Notes to the Financial StatementsDec. 31, 2016, and March 31, 2016(Dollars in Thousands)

Note 2. Summary of Significant Accounting Policies

Reporting entity: The Plan is sponsored by LCRA. The Plan does not purport to, and does not,present the financial position or changes in financial position of LCRA as of any date or for anyperiod. Certain information regarding the Plan is included in the notes to LCRA's financialstatements. The LCRA Retirement Benefits Board of Trustees voted to change Plan's fiscalyear-end from March 31 to Dec. 31 on Sept. 21 , 2016. This change is effective for the periodending Dec. 31, 2016.

Use of estimates: The preparation of financial statements in conformity with U.S. generallyaccepted accounting principles (U.S. GAAP) requires management to make estimates andassumptions that affect the reported amounts of assets, liabilities and changes therein. Actualresults could differ from those estimates.

The Plan invests in various types of investments. Investments are exposed to various risks,such as interest rate, market and credit risks. Due to the level of risk associated with certaininvestments, it is at least reasonably possible that changes in the values of investments willoccur in the near term and that such changes could materially affect participants' accountbalances and the amounts reported in the statements of net position.

Basis of accounting: The financial statements of the Plan are reported using the economicresources measurement focus and are prepared on the accrual basis of accounting inconformity with U.S. GAAP. Revenues are recorded when earned, and expenses are recordedwhen a liability is incurred, regardless of the timing of the related cash flows. The Plan appliesall applicable Governmental Accounting Standards Board (GASB) pronouncements andpresents its financial statements in accordance with the GASB Codification of GovernmentAccounting and Financial Reporting Standards.

Investment valuation and income recognition: Effective April 1, 2016, the Plan implementedGASB Statement No. 72, Fair Value Measurement and Application (Statement No. 72).Statement No. 72 addresses the accounting and reporting issues related to fair valuemeasurements. The adoption of this standard did not have a significant impact on the Plan'sfinancial statements other than requiring additional footnote disclosures.

Fair value is the price that would be received to sell an asset in an orderly transaction betweenmarket participants. Investments are reported at fair value based upon quoted market prices, orwhen quoted market prices are not readily determinable, estimated fair values using observableinputs including quoted prices for similar securities, interest rates, and a fixed income pricingmodel which uses available market rates. The plan values its fixed income securities using afixed income pricing model provided by its investment custodian. Shares of registeredinvestment companies (mutual funds) are reported at fair value based on the quoted marketprice per share of the fund.

10

Page 13: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Notes to the Financial StatementsDec. 31, 2016, and March 31,2016(Dollars in Thousands)

Note 2. Summary of Significant Accounting Policies (continued)

Purchases and sales of securities are recorded on a trade-date basis. Interest income isrecorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation(depreciation) includes the Plan's gains and losses on investments bought and sold, as well asunrealized gains and losses in investments still held at year-end.

Payment of benefits: Benefits are recorded when paid.

Subsequent events: The Plan has evaluated subsequent events through Aug. 2, 2017, thedate the financial statements were available to be issued. See note 7 for subsequent eventdisclosures.

Note 3. Investments

The Plan's trustees have the following responsibilities:

• Operate the Plan in compliance with legal requirements and Plan documents and for theexclusive benefit of the participants.

• Adopt an Investment Policy Statement (IPS) that provides the appropriate investment

options.

• Identify appropriate investment options allowing for adequate levels of asset allocation.

• Select qualified investment administrators.

• Select a trustee/custodian.

• Monitor investment results.

• Monitor administrators' compliance with the IPS and the fees charged for services.

• Take appropriate action if objectives are not being met or guidelines are not being followed.

Investment administrators' have the following responsibilities:

• Develop and implement the investment strategy.

• Manage assets within guidelines, regulations and the investment strategy.

• Communicate with the Board, at least annually, the performance of the Plan's investments.

Trustees provide trustee services and provide for the education of participants regarding theimportance of equities and asset allocation. The record keeper maintains account balanceinformation on a participant, as well as on a total Plan basis. Participants determine personalrisk level and select options appropriate for meeting their unique investment objectives.

The investment objective of the Plan is to provide a manageable group of mutual funds that offerthe participants a quality product with the ability to properly diversify their investment holdings.

11

Page 14: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Notes to the Financial StatementsDec. 31, 2016, and March 31,2016(Dollars in Thousands)

Note 3. Investments (continued)

The fund manager and investment administrator are expected to manage the Plans' assets in amanner consistent with the investment objectives, guidelines, and constraints outlined in thisstatement and in accordance with state and federal requirements. This includes dischargingresponsibilities with respect to the Plan consistent with the prudent expert-standard as describedabove and all other fiduciary responsibility provisions and regulations. The fund manager andinvestment administrator shall at all times be registered in good standing as an investment adviserunder the Investment Advisers Act of 1940, and shall acknowledge in writing that it is a fiduciaryof the Plan.

The Board has determined that a wide range of alternative investment options will be available toparticipants.

A representative of the fund administrator and/orfund manager meets with the Board annually toreview and explain the Plans' investment results. Written reports of interim performance areprovided on a quarterly basis. Monthly statements of portfolio holdings and transactions areprovided to the Board. The fund manager is available on a reasonable basis for telephonecommunication when needed. Any material event that affects the ownership of the fund managerfirm or the management of this account must be reported immediately to the Board.

The Board monitors each fund's performance on a quarterly basis and evaluates each fund's andthe Plans' success in achieving the investment objectives over a rolling three- to five-year timehorizon.

The Plan's investments are subject to various risks that have the potential to result in losses.These risks are custodial credit risk, credit risk, concentration of credit risk, interest rate risk andforeign currency risk. Each risk is described in detail on the following pages.

Investments are valued at fair value. A comparison of original cost to fair value as of Dec. 31,2016,and March 31,2016, is as follows:

(Dollars in Thousands)

Common stockMutual funds

Total

Dec.31,

Fair Value

$4,076194,930

$199,006

2016Cost

$3,992184,981

$188,973

March 31,Fair Value

$3,331182,387

$185,718

2016Cost

$3,643177,395

$181,038

12

Page 15: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Notes to the Financial StatementsDec. 31, 2016, and March 31,2016(Dollars in Thousands)

Note 3. Investments (continued)

Investments, as of Dec. 31, 2016 are as follows:

(Dollars in Thousands)

Investments

Equity securitiesEquity securitiesTotal equity securities

Investments measured at Net Asset ValueMutual fundsTotal investments measured at Net Asset Value

Total investments

$ 4,0764,076

194,930194,930

$ 199,006

Fair Value

Quoted Prices

in Active

Markets for

(Level 1)

4,0764,076

Measurements Using

Significant

Other

Observable

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Investments measured at Net Asset Value (NAV), as of Dec. 31, 2016 are as follows:

(DollarsIn.Thousands)

Investments Measured at the Net Asset Value (NAV) Equities:Mutual funds

Fidelity Contrafund K ' $ 34,827Fidelity 500 Index Institutional ' 21,433Fidelity Freedom 2035 • 18,077Fidelity Freedom 2025' 12,918Fidsllty Freedom 2015" 7,565Fidelity Freedom 2045' 12,605Vanguard Equity-lncomeAdm 11,612

Fldelfty MW Retirement Government MVIPFidelity Low-Priced Stock Fund K ' 9,913Fidelity Diversified International K' 7,825Vanguard Selected Value ' 6,387

Vanguard Total Bond Market Index Admiral3Fidelity Intermediate Bond FundFidelity Freedom 2D55 '• 3,647Vanguard interm-Term Bond Index Admiral

Fidelity Extended Market Index Premium ^ 2,532BrokerageLink5 1,476Fidelity Freedom K Income'' 839

Vanguard Total Intl Stock Index Mmiral2 899Fidelity International Index Premium z 691Fidelity Freedom 2010 '• 197Fidelity Freedom 2005 • _2_

Total investments measured at Net Asset Value (NAV) $ 153.445

Fixed Income

$

2,0096,363

6,4441,401

10,415

5,8084,616

4053,687

S3

2404

$ 41,485

Net Asset ValueUnfunded

Corrtnrtments

S 34.827 $21.43320,08619,28114,00914,006

11,61210.4159.913

7,8256,3875,8084.6164.052

3,6872,5321,476

932899691437

6$ 194,930 $

RedemptionFrequency

(if CurrentlyEligible)

DailyDailyDailyDailyDailyDailyDailyDailyDailyDailyDailyDailyDailyDailyDailyDailyDailyDailyDailyDailyDailyDaily

RedemptionNoticePeriod

N/AN/AN/AN/AN/AN/A

WAN/A

WAN/AN/A?AN/AN/A

WAN/AWAN/ANfAN/A

N/AN/A

WeightedAverage

Maturity(WAM)

N/AN/AN/A?AWAN/A

WA51 days

N/A

?AN/A

8.3 years

4.6 years

N/A7.2 years

N/AN/AN/AN/A

WA?AN/A

CreditRating

WAN/AN/A?AWAN/AN/ANAN/AN/AN/A

M/Aa2A?2N/A

MWa2N/AN/AN/AN/A?AN/AN/A

13

Page 16: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Notes to the Financial StatementsDec. 31, 2016, and March 31,2016(Dollars in Thousands)

Note 3. Investments (continued)

1 Domestic Equity Managers invest in U.S.-based companies utilizing bottom-up stock selection andquantitative screening. Some managers may be passively managed and seek to replicate performance oftheir respective indices. Active managers seek to outperform their respective indices over a long terminvestment horizon.2 International Equity Managers invest in intemationally-based companies and seek either to replicate oroutperform their respective indices over a long term investment horizon.3 Fixed Income Managers invest in U.S.-related debt securities and pursue capital preservation in lieu ofcapital growth. These managers seek either to replicate or outperform their respective indices over a longterm investment horizon.4 Target Date Managers may invest in both equity and debt strategies and shift their asset allocation overtime. As a fund approaches its intended retirement year (e.g., 2025), it will shift its asset allocation to debtsecurities in order to preserve capital.5 BrokerageLink allows participants to directly invest. Market value shown includes the Fidelity Fund andExternal Fund.6 The Trust currently has no unfunded commitments due to investment managers; all of the currentinvestment managers are fully funded.

Investments, as of March 31, 2016 are as follows:

(Dollars in Thousands)

Investments

Equity securities

Equity securitiesTotal equity securities

Investments measured at Net Asset Value

IVijtual fundsTotal investments measured at Net Asset Value

Total investments

$ 3,3313,331

182,387182,387

$ 185,718

Fair Value Measurements UsingQuoted Prices

in ActiveMarkets for(Level 1)

3,3313,331

SignificantOther

Observable(Level 2)

SignificantUnobservable

Inputs(Level 3)

14

Page 17: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Notes to the Financial StatementsDec. 31, 2016, and March 31,2016(Dollars in Thousands)

Note 3. Investments (continued)

Investments measured at Net Asset Value (NAV), as of March 31, 2016 are as follows:

(DoHars in Thousands)

Investments Measured at the Net Asset Value (NAV)Mutual functe

Fidelity Contrafund K1

Fidelity 500 Index Institutional1

Fidelity Freedom 20354

Fidelity Freedom 20254

Fidelity Freedom 20154

Fidelity Freedom 2045"

Vanguard Equity-lncomeMm 2

Fidelity Low-Priced Stock Fund K 1

Fidelity Diversified International K2

Fidelity MMT Retirement Government IW 5

Vanguard Selected Value1

Vanguard Total Bond Market Index Admiral3

Fidelity Intermediate Bond Fund3

Vanguard Interm-Term Bond Index Admiral "

Fidelity Freedom 2055A

Fidelity Extended Martet Index Premium 2

BrokerageLink5

Fidelity Freedom K Income"

Fidelity International Index Premium 2

Vanguard Total Intl Stock Index Admiral3

Fidelity Freedom 2010"

Rdelity Freedom 2005"Total investments measured at Net Asset Value (NAV)

Equities Net Asset ValueUnfunded

Commitme n ts

t 37.377 $ - $ 37,377 $

19,461

12,460 4,821

9,757 6,697

7,287 7,086

10,672 621

10,260

10,204

9,481

7,281

6,454

4,373

1,293

0,260

0,204

8.788 - 8708

9,811 9,811

5.742 - 5742

5.500 5,500

4.763 4,763

3,121 3,121

2.542 149 2,691

1,651 - 1,651

1,240 - 1,240

727 42 769692 - 692

495 - 495

164 233 397

1 3 ,A.__i$ 139.540 $ 42,847 $ 182,387 S

RedemptionFrequency (if

Currently

Ellglbte)

DailyDailyDailyDailyDailyDailyDailyDaily

Daily

Daily

Daily

Daily

DailyDailyDaily

Daily

Daily

DailyDailyDailyDailyDaily

RedemptionNoticePeriod

?AN/AWAWAWAWAWAWAN/AN/AN/AN/AN/AN/AN/AN/AN/AN/AWAN/AN/AN/A

Weighted

AverageMaturity

IWflM)

NANANANANANANANANA

45 days

MA7.8 years

4.5 years

7.3 years

NANANANANAMANANA

CreditRating

NAw\NANAw\NANAw\w\w\w\

AA+/Aa1

A/A2AA+/Aa1

w\NAw\w\?\NANAw\

1 Domestic Equity Managers invest in U.S.-based companies utilizing bottom-up stock selection andquantitative screening. Some managers may be passively managed and seek to replicate performance oftheir respective indices. Active managers seek to outperform their respective indices over a long terminvestment horizon.2 International Equity Managers invest in intemationally-based companies and seek either to replicate oroutperform their respective indices over a long term investment horizon.3 Fixed Income Managers invest in U.S.-related debt securities and pursue capital preservation in lieu ofcapital growth. These managers seek either to replicate or outperform their respective indices over a longterm investment horizon.4 Target Date Managers may invest in both equity and debt strategies and shift their asset allocation overtime. As a fund approaches its intended retirement year (e.g., 2025), it will shift its asset allocation to debtsecurities in order to preserve capital.5 BrokerageLink allows participants to directly invest. Market value shown includes the Fidelity Fund andExternal Fund.6 The Trust currently has no unfunded commitments due to investment managers; all of the currentinvestment managers are fully funded.

The Plan uses various methods to measure the fair value of investment on a recurring basis.Statement No. 72 establishes a hierarchy that prioritizes inputs to valuation methods. The threelevels of inputs are:

Level 1 - Unadjusted quoted prices in active markets for identical assets and liabilities that thePlan has the ability to access.

Level 2 - Observable inputs other than quoted prices included in Level 1 that are observable forthe asset or liability, either directly or indirectly. These inputs may include quoted prices for theidentical instrument in an inactive market, prices for similar instruments, interest rates,prepayment speeds, credit risk, yield curves, default rates and similar data.

15

Page 18: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Notes to the Financial StatementsDec. 31, 2016, and March 31,2016(Dollars in Thousands)

Note 3. Investments (continued)

Level 3 - Unobservable inputs for the asset or liability, to the extent relevant observable inputsare not available, representing the Plan's own assumptions about the assumptions a marketparticipant would use in valuing the asset or liability, and would be based on the bestinformation available.

The availability of observable inputs can vary from security to security and is affected by a widevariety of factors, including, for example, the type of security, whether the security is new andnot yet established in the marketplace, the liquidity of markets, and other characteristicsparticular to the security. To the extent that valuation is based on models or inputs that are lessobservable or unobservable in the market, the determination of fair value requires morejudgment. Accordingly, the degree of judgment exercised in determining fair value is greatest forinstruments categorized in Level 3.

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. Insuch cases, for disclosure purposes, the level in the fair value hierarchy within which the fairvalue measurement falls in its entirety, is determined based on the lowest level input that issignificant to the fair value measurement in its entirety.

Investments measured at net asset value do not have significant terms or conditions forredemption or commitment for additional funding. The inputs or methodology used for valuingsecurities are not necessarily an indication of the risk associated with investing in thosesecurities.

Custodial credit risk: Custodial credit risk for investments is the risk that in the event of afailure of a counterparty to a transaction, the Plan will not be able to recover the value of theinvestment or collateral securities that are in the possession of an outside party. The Plan hasno investment policy regarding custodial credit risk. The Plan is exposed to minimal custodialcredit risk. All investments are held in bank nominee name and not in the Plan's name.

Credit risk: Credit risk is the risk that an issuer or other counterparty to an investment will notfulfill its obligation. The Plan has no formal investment policy regarding credit quality ratingguidelines. These associated risks will vary according to each participant's investment elections.As of 12/31/16, there were three fixed income managers in the Plan. Vanguard Total BondMarket Index Admiral held a portfolio-level credit rating ofAA/Aa2, Fidelity Intermediate BondFund held a portfolio-level credit rating ofAA-/Aa3, and Vanguard Interm-Term Bond IndexAdmiral held a portfolio-level credit rating ofAA/Aa2.

Concentration of credit risk: Concentration of credit risk is defined as the risk of lossattributed to the magnitude of a government's investment in a single issuer. The Plan has noinvestment policy regarding concentration of credit risk. Securities issued or explicitelyguaranteed by United States government and investments in mutual funds and externalinvestment pools are not subject to concentration of credit risk.

16

Page 19: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Notes to the Financial StatementsDec. 31, 2016, and March 31,2016(Dollars in Thousands)

Note 3. Investments (continued)

The following table presents the fair value of equity investments representing 5.0 percent ormore of the Plan's net position separately identified as of Dec. 31, 2016, and March 31, 2016:

(Dollars in Thousands)

Fidelity ContrafundSpartan 500 Index InstitutionalFidelity Freedom 2035Fidelity Freedom 2025Fidelity Freedom 2015Fidelity Freedom 2045Vanguard Equity-lncome Fund AdmiralFidelity Low Priced Stock

Dec.31,

2016$ 34,827

21,43320,08619,28014,00914,00611,612

*

March 31,2016

$ 37,37719,48117,28116,45414,37311,29310,26010,204

*Did not meet 5% criteria at respective financial statement date.

Interest rate risk: Interest rate risk is the risk that changes in interest rates will adversely affectthe fair value of investments. The Plan has no formal investment policy for the management ofinterest rate risk.

Foreign currency risk: Foreign currency risk is the risk that changes in exchange rates willadversely affect the fair value of an investment. The Plan has no formal investment policy forthe management of foreign currency risk. As of December 31, 2016 and March 31, 2016, thePlan had no investments with exposure to foreign currency risk.

Note 4. Related-Party Transactions

Certain Plan investments are shares of mutual funds managed by Fidelity Investments. FidelityInvestments is the trustee, as defined by the Plan and, therefore, these investments qualify asrelated-party transactions.

Note 5. Plan Termination

Although it has not expressed any intent to do so, the Plan sponsor has the right under the Planto discontinue its contributions at any time and to terminate the Plan. The event of completediscontinuance of contributions to the Plan by the employer does not constitute a formaltermination of the Plan and does not preclude later contributions; however, the accounts of allparticipants will, as of the date of the discontinuance, become 100.0 percent vested and non-forfeitable.

Note 6. Tax Status

The Internal Revenue Service has determined and informed LCRA that the Plan and relatedtrust are designed in accordance with applicable sections of the IRC. The Board and the Plan'stax counsel believe that the Plan is designed, and is currently being operated, in compliancewith the applicable requirements of the IRC and, therefore, believe the Plan is qualified and therelated trust is tax-exempt.

17

Page 20: 401 (k) Plan Financial Statements Lower Colorado River ...k)-Plan...Lower Colorado River Authority 401 (k) Plan Financial Statements As of and for the Nine Months Ended Dec. 31, 2016,

Lower Colorado River Authority 401 (k) Plan

Notes to the Financial StatementsDec. 31, 2016, and March 31, 2016(Dollars in Thousands)

Note 6. Tax Status (continued)

The Plan is not subject to the provisions of the Employee Retirement Income Security Act.

Note 7. Subsequent Event

The plan was amended effective Jan. 1,2017 to amend sections of the Plan related tocompensation, plan year, catch-up contributions, hardship withdrawals, and terminations ofemployment.

18