2005 Annual Review - National Futures Association

NOTES TO FINANCIAL STATEMENTS Years ended June 30, 2005 and 2004
On July 1, 2003, the Plan’s eligibility requirement and costsharing
schedule was amended. Prior to July 1, 2003, an
employee with at least 10 years of full-time service and who
was at least 55 at retirement was eligible for benefits.
Employees began earning years of service upon employment.
Subsequent to July 1, 2003, the eligibility requirement was
amended to reflect that employees can retire at age 55 or older
but must have at least 10 years of service since their 45th birthday.
All employees will retire having at least 10 years of service
preceding their retirement.
Prior to July 1, 2003, the cost-sharing schedule was based on
age at retirement and years of service. Subsequent to July 1,
2003, the new structure is based on age at retirement. The
following shows the change both prior to and subsequent to the
Plan amendment:
Prior to July 1, 2003
Based on age at retirement and years of service:
Retiree’s Share
Age + Service Pre-65 Post-65
65-69 90% 50%
70-74 80% 40%
75-79 70% 30%
80-84 60% 20%
85+ 50% 10%
Subsequent to July 1, 2003
Based on age at retirement:
Retiree’s Share
Age Pre-65 Post-65
55-59 70% 40%
60-64 60% 30%
65+ 50% 20%
Any employee who retired before August 15, 2003 was given the
choice to convert to the new amendment or be grandfathered
into the pre-amended requirements.
For the years ended June 30, 2005 and 2004, the net periodic
postretirement benefit cost and benefits paid for the Plan are as
the follows:
2005 2004
Net periodic postretirement
benefit cost $ 62,219 $ 461,944
Benefits paid 11,101 11,247
The June 30, 2005 and 2004 accumulated postretirement
benefit obligation was determined using an assumed weighted
average discount rate of 5.0% and 6.25%, respectively. The
rate of increase in the gross cost of covered healthcare benefits
was assumed to be 8.0% and 9.0% for fiscal years 2005 and
2004, respectively. The rate of increase is assumed to decline
by 1.00% for each year after 2005 to 5.00% in 2008 and
thereafter.
The Association also participates in the purchase of life insurance
on behalf of certain executive officers as part of the
National Futures Association Split Dollar Life Insurance Plan
(the “Split Dollar Plan”). The purpose of the Split Dollar Plan
is to provide participating executive officers with an insured
death benefit during employment and after retirement. The
insurance policy also allows for capital accumulation through
the buildup of cash value. As of June 30, 2005 and 2004, the
cash surrender value is $2,265,511 and $1,990,228, respectively,
and is classified in other assets on the statements of financial
position. The increase in cash surrender value approximately
equals the premiums paid, and approximately all premiums
paid increase the buildup of the cash surrender value.
7. Deferred Rent Credit:
Effective November 2001, the Association executed a 10-year
operating lease for office premises in New York. Also, effective
February 1996, the Association executed a 12-year operating
lease for office premises in Chicago. The leases include rent
incentives, and, accordingly, the Association is recognizing such
abatement as a reduction of rent expense over the terms of the
lease on the straight-line basis. The total deferred rent credit at
June 30, 2005 and 2004 was $929,912 and $1,112,904,
respectively, of which $223,987 and $194,746, respectively, are
included in accounts payable, accrued expenses and other
current liabilities on the statements of financial position. For
the years ended June 30, 2005 and 2004, cash payments for
rent were approximately $2,431,000 and $2,593,000, respectively.
The Association offset these cash payments with deferred
rent credits of $183,000 and $153,000 in 2005 and 2004,
respectively, resulting in rent expense of approximately
$2,248,000 and $2,440,000 in 2005 and 2004, respectively.
8. Assessment Fee Revenue
The assessment fee rate for the period January 1, 2005 to
June 30, 2005 was $.02 per side. The assessment fee rate for
the period January 1, 2003 to December 31, 2004 was $.03
per side. These rates were identical for both futures and
options contracts.
At June 30, 2005 and 2004, the actuarial and recorded liabilities
for the Plan, none of which has been funded, are:
2005 2004
Accumulated postretirement
benefit obligation $2,063,049 $1,465,244
Accrued postretirement
benefit cost 3,488,848 3,437,675
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NFA
2005 ANNUAL REVIEW