January 2012

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To the International Executive Council of the
International Brotherhood of Electrical Workers

We have audited the accompanying consolidated statements of financial position of the International Brotherhood of Electrical Workers and subsidiaries (collectively the International Union) as of June 30, 2011 and 2010, and the related consolidated statements of activities and of cash flows for the years then ended. These financial statements are the responsibility of the International Union's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the International Union's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the International Union's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the International Brotherhood of Electrical Workers and subsidiaries as of June 30, 2011 and 2010, and the consolidated changes in their net assets and their consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Washington, DC
August 10, 2011

International Brotherhood of Electrical Workers and Subsidiaries
Consolidated Statements of Financial Position

June 30, 2011 and 2010

Assets Unappropriated Appropriated 2011 Total 2010 Total
Cash and cash equivalents $6,509,148 $ - $6,509,148 $7,766,909
Receivables
Loans and advances to
chartered bodies
528,000 - 528,000 1,613,500
Per capita tax receivable 7,942,878 - 7,942,878 9,095,398
Due from Trust for the
IBEW Pension Benefit Fund
442,334 - 442,334 749,291
Accrued interest and dividends 595,053 - 595,053 720,391
Security sales pending settlement 205,439 - 205,439 14,432,859
Other 1,249,621 - 1,249,621 1,327,079
      Total receivables 10,963,325 - 10,963,325 14,432,859
Investments—at fair value 241,451,926 160,252,000 401,703,926 353,379,231
Unbilled rent receivable 6,179,518 - 6,179,518 5,703,778
Cash collateral held for securities on loan - - - 22,134,402
Property and equipment—
at cost
Land, building and improvements 130,695,757 - 130,695,757 130,385,579
Furniture and equipment 46,226,625 - 46,226,625 45,957,638
176,922,382 - 176,922,382 176,343,217
Accumulated depreciation (41,739,748) - (41,739,748) (35,354,598)
Net property and equipment 135,182,634 - 135,182,634 140,988,619
Other Assets
Deferred leasing, organization and financing costs (net of amortization) 2,784,608 - 2,784,608 3,223,646
Prepaid expenses 1,145,959 - 1,145,959 1,638,847
Inventory of merchandise and office supplies, at cost 1,251,166 - 1,251,166 1,281,993
Deposits 52,791 - 52,791 8,000
Other 1,157,671 - 1,157,671 300,472
Total other assets 6,392,195 - 6,392,195 6,452,958
Total Assets $406,678,746 $160,252,000 $566,930,746 $550,858,756


Liabilities and Net Assets
Unappropriated
Appropriated
2011 Total
2010 Total
Liabilities
Accounts payable and
accrued expenses
$5,392,241 $ - $5,392,241 $5,013,643
Excess of projected benefit
obligation over pension plan assets
65,310,821 - 65,310,821 86,832,612
Liability for postretirement benefits - 160,252,000 160,252,000 161,089,787
Security purchases pending
settlement
7,682,157   7,682,157 5,254,279
Deferred per capita tax revenue 6,103,178 - 6,103,178 5,385,983
Reciprocity Agreement funds pending settlement 3,115,083 - 3,115,083 4,118,939
Liability to return cash collateral held for securities on loan - - - 22,134,402
Mortgage loan payable 64,439,072 - 64,439,072 67,079,245
Other - - 1,115,001 1,203,229
Total liabilities 153,157,553 160,252,000 313,409,553 358,112,479
Unrestricted net assets 253,521,193 - 253,521,193 192,746,277
Total liabilities and net assets $406,678,746 $160,252,000 $566,930,746 $550,858,756




International Brotherhood of Electrical Workers and Subsidiaries

Consolidated Statements of Activities

Years ended June 30, 2011 and 2010

Unappropriated Appropriated 2011 Total 2010 Total
Operating revenue
Per capita tax $97,733,451 $ - $97,733,451 $96,684,462
Initiation and reinstatement fees 1,087,567 - 1,087,567 1,129,014
Rental income, net 13,707,814 - 13,707,814 13,626,427
Sales of supplies 782,736 - 782,736 836,366
Other income 3,596,395 - 3,596,395 3,228,494
     Total operating revenue 116,907,963 - 116,907,963 115,504,763
Program services expenses
Field services and programs 88,975,573 10,983,385 99,958,958 99,701,834
IBEW Journal and media relations 6,685,530 384,230 7,069,760 6,627,127
Industry trade program 12,264,673 1,464,971 13,729,644 13,278,832
Per capita tax expense 7,865,876 - 7,865,876 7,241,650
Legal defense 2,433,468 - 2,433,468
2,426,626
     Total program services 118,225,120 12,832,586 131,057,706 129,276,069
Supporting services expenses
Governance and oversight 6,187,026 736,313 6,923,339 7,336,048
General administration 6,613,348 1,194,101 7,807,449 8,982,512
     Total supporting services 12,800,374 1,930,414 14,730,788 16,318,560
         Total operating
          expenses
131,025,494 14,763,000 145,788,494 145,594,629
Change in net assets from
operations before investment
and other income
(14,117,531) (14,763,000) (28,880,531) (30,089,866)
Investment income
Interest and dividends 7,402,159 - 7,402,159 8,324,694
Net appreciation (depreciation) in fair value
of investments
48,794,127 - 48,794,127 28,074,517
Investment expenses (1,213,521) - (1,213,521) (927,662)
Net investment income 54,982,765 - 54,982,765 35,471,549
Other income
Gain on sale of property
and equipment
- - - 26,920
Currency translation adjustment 1,018,089 - 1,018,089 2,040,091
      Total other income 1,018,089 - 1,018,089 2,067,011
Change in net assets before pension-related and postretirement benefit charges other than net periodic benefits costs 41,883,323 (14,763,000) 27,120,323 7,448,694
Defined benefit-related charges other than net periodic benefits costs
      Pension benefits 24,372,325 - 24,372,325 15,809,489
      Postretirement health
      care benefits
- 9,282,268 9,282,268 1,110,338
Change in net assets 66,255,648 (5,480,732) 60,774,916 24,368,521
Unrestricted net assets
at beginning of year
192,746,277 - 192,746,277 168,377,756
Appropriation for postretirement
benefit costs
(5,480,732) 5,480,732 - -
Unrestricted net assets
 at end of year
$253,521,193 $- $253,521,193 $192,746,277




International Brotherhood of Electrical Workers and Subsidiaries

Consolidated Statements of Cash Flows

Years ended June 30, 2011 and 2010

 
2011
2010
Cash flows from operating activities    
Cash flows from
Affiliated chartered bodies $101,473,469 $100,491,102
Interest and dividends 7,527,497 8,369,828
Rental income 13,232,074 12,601,236
Participant contributions collected on behalf of PBF 56,330,157 56,666,914
Reimbursement of administrative expenses from BF 3,175,000 3,675,000
Other 2,669,997 5,548,201
Cash provided by operations 184,408,194 187,352,281
Cash paid for
Salaries, payroll taxes, and employee benefits (84,882,822) (85,490,993)
Service providers, vendors and others (31,523,233) (29,745,627)
Participant contributions remitted to PBF (56,173,200) (56,823,222)
Per capita tax (7,865,876) (8,005,434)
Interest (7,539,660) (7,323,495)
     Cash used for operations (187,984,791) (187,388,771)
          Net cash used for operating activities (3,576,597) (36,490)
Cash flows from investing activities    
Loans and advances made to chartered bodies - (35,000)
Repayments on loans and advances made to chartered bodies 1,085,500 1,081,500
Purchase of property and equipment (763,651) (1,721,307)
Leasing commissions paid - (138,626)
Purchase of investments (259,155,506) (271,621,707)
Proceeds from sale of property and equipment - 26,923
Proceeds from sale of investments 271,224,329 277,359,497
Net short-term cash investment transactions (8,449,752) (2,360,484)
      Net cash provided by investing activities 3,940,920 2,590,796
Cash flows from financing activities    
Payments on mortgages and other notes (2,640,173) (2,495,966)
      Net cash used for financing activities (2,640,173) (2,495,966)
Effect of exchange rate changes on cash 1,018,089 2,040,091
Net increase in cash (1,257,761) 2,098,431
Cash and cash equivalents    
Beginning of year 7,766,909 5,668,478
End of year $6,509,148 $7,766,909
Reconciliation of change in net assets to
net cash used for operating activities
   
Change in net assets $60,774,916 $24,368,521
Noncash charges (credits) included in income    
Depreciation and amortization 7,008,674 7,241,736
Net depreciation (appreciation) in fair value
of investments
(48,794,127) (28,074,517)
Gain on sale of property and equipment - (26,920)
Currency translation adjustment (1,018,089) (2,040,091)
Changes in accruals of operating assets and liabilities    
Receivables 1,662,273 1,860,494
Unbilled rent receivable (475,740) (1,025,191)
Other assets (378,275) (749,005)
Excess or deficiency of pension plan assets over projected benefit obligation (21,521,791) (12,007,742)
Accounts payable and accrued expenses 378,238 (401,422)
Accrued postretirement benefit cost (837,787) 8,029,232
Deferred revenue 717,195 355,869
Reciprocity Agreement funds pending settlement (1,003,856) 2,369,646
Payroll deductions and other liabilities (88,228) 62,900
Net cash used for operating activities $(3,576,597) $(36,490)




International Brotherhood of Electrical Workers and Subsidiaries

Notes to Consolidated Financial Statements

Years ended June 30, 2011 and 2010

Note 1. Summary of Significant Accounting Policies

Nature of Operations—The International Brotherhood of Electrical Workers is an international labor union established to organize all workers for the moral, economic and social advancement of their condition and status. The significant portion of the International Union's revenue comes from per capita taxes of members paid by the local unions.

Basis of Presentation— The consolidated financial statements include the accounts of the International Brotherhood of Electrical Workers, its wholly-owned subsidiary, Headquarters Holding Company, Inc., and the IBEW Headquarters Building LLC, of which the International Brotherhood of Electrical Workers owns 99%. Headquarters Holding Company, Inc. held title to real estate that was sold during 2004. Headquarters Holding Company, Inc. had no activity during the years ended June 30, 2011 and 2010. The IBEW Headquarters Building LLC also holds title to real estate, an office building that was acquired in June 2004, which beginning late-January 2005 serves as the headquarters for the International Brotherhood of Electrical Workers. All inter-organization accounts and transactions have been eliminated in consolidation. The International Union maintains an appropriated fund designation for internal tracking of postretirement benefits.

Method of Accounting— The financial statements have been prepared using the accrual basis of accounting in accordance with U.S. generally accepted accounting principles.

Investments— Generally, investments are carried at fair value. Changes in fair value of investments are recognized as unrealized gains and losses. For the purpose of recording realized gains or losses the average cost method is used. Purchases and sales are recorded on a trade-date basis. The purchases and sales pending settlement are recorded as either assets or liabilities in the consolidated statement of financial position. Pending sales represent amounts due from brokers while pending purchases represent amounts due to brokers for trades not settled. All pending transactions at June 30, 2011 and 2010 settled in July 2011 and July 2010, respectively.

Property and Equipment— Building, improvements, furniture and equipment are carried at cost. Major additions are capitalized. Replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are expensed currently. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which are as follows:

        Building and improvements   10-40 years
        Tenant improvements              Life of respective lease
        Furniture and equipment        2-10 years

Accounts Receivable—Trade accounts receivable are reported net of an allowance for expected losses. Based on management's evaluation of receivables, the allowance account has a zero balance at June 30, 2011 and 2010.

Inventory— The International Union maintains an inventory of supplies for use and for resale to local unions and individual members. Inventory is stated at average inventory cost which approximates the selling price of items held.

Canadian Exchange— The International Union maintains assets and liabilities in Canada as well as the United States. It is the intent of the International Union to receive and expend Canadian dollars in Canada and not, on a regular basis, convert them to U.S. dollars. For financial statement purposes all assets and liabilities are expressed in U.S. dollar equivalents.

Canadian dollars included in the consolidated statement of financial position are translated at the appropriate year-end exchange rates. Canadian dollars included in the consolidated statement of activities are translated at the average exchange rates for the year. Unrealized increases and decreases due to fluctuations in exchange rates are included in "Currency translation adjustment" in the consolidated statement of activities.

Statement of Cash Flows— For purposes of the consolidated statement of cash flows, cash is considered to be amounts on hand and in demand deposit bank accounts subject to immediate withdrawal.

Estimates— The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.

Subsequent Events Review— Subsequent events have been evaluated through August 10, 2011, which is the date the financial statements were available to be issued. This review and evaluation revealed no new material event or transaction which would require an additional adjustment to or disclosure in the accompanying financial statements.

Note 2. Tax Status

The Internal Revenue Service has advised that the International Union qualifies under Section 501(c)(5) of the Internal Revenue Code and is, therefore, not subject to tax under present income tax laws. Headquarters Holding Company, Inc. and IBEW Headquarters Building, LLC are not taxpaying entities for federal income tax purposes, and thus no income tax expense or deferred tax asset has been reported in the financial statements. Income of the Companies is taxed to the members in their respective returns.

Note 3. Investments


The following methods and assumptions were used to estimate the fair value of each class of financial instruments which are listed below. For short-term cash investments, the cost approximates fair value because of the short maturity of the investments. Generally, government and government agency obligations, corporate bonds and notes, stocks, the AFL-CIO Housing Investment Trust, and mutual funds fair values are estimated using quoted market prices. For mortgage loans, the fair value is determined based on the discounted present value of future cash flows using the current quoted yields of similar securities.


June 30, 2011
Cost Fair Value Fair Value of Securities
on Loan
Net Fair Value of Securities
on Hand
Short-term cash investments $24,231,018 $24,231,018 $ - $24,231,018
Government and government
agency obligations
24,123,402 25,439,469 - 25,439,469
Corporate bonds and notes 39,251,143 41,501,108 - 41,501,108
Stocks 132,876,857 158,333,179 - 158,333,179
Mutual funds 18,018,285 18,253,304 - 18,253,304
103-12 entities 87,858,605 100,383,240 - 100,383,240
Limited partnership 17,416,824 18,310,434 - 18,310,434
AFL-CIO Housing Investment Trust 15,313,030 15,252,174 - 15,252,174
  $359,089,164 $401,703,926
$ -
$401,703,926


June 30, 2010
Cost Fair Value Fair Value of Securities
on Loan
Net Fair Value of Securities
on Hand
Short-term cash investments $18,630,850 $18,630,850 $ - $18,630,850
Government and government
agency obligations
22,777,428 23,977,671 2,789,857 21,187,814
Corporate bonds and notes 28,849,945 30,045,696 652,635 29,393,061
Stocks 148,398,791 148,022,446 18,170,304 129,852,142
Mortgage loans 42,803,935 42,803,935 - 42,803,935
Mutual funds 16,800,032 17,340,710 - 17,340,710
103-12 entities 36,124,649 40,495,056 - 40,495,056
Limited partnership 17,416,824 17,432,466 - 17,432,466
AFL-CIO Housing Investment Trust 14,695,629 14,630,401 - 14,630,401
  $346,498,083 $353,379,231 $21,612,796 $331,766,435

The International Union uses generally accepted accounting standards related to Fair Value Measurements, for assets and liabilities measured at fair value on a recurring basis. These standards require quantitative disclosures about fair value measurements separately for each major category of assets and liabilities, clarify the definition of fair value for financial reporting, establish a hierarchal disclosure framework for measuring fair value, and require additional disclosures about the use of fair value measurements.

The three levels of the fair value hierarchy and their applicability to the International Union's portfolio investments, are described below:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 – Quoted prices for similar assets or liabilities, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes investments valued at quoted prices adjusted for legal or contractual restrictions specific to the security.

Level 3 – Pricing inputs are unobservable for the asset or liability, that is, inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability. Level 3 includes private portfolio investments that are supported by little or no market activity.

The following is a summary of the inputs used as of June 30, 2011, in valuing investments carried at fair value:


Description Total Investments at
June 30, 2011
Quoted Market Prices for Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Cash and cash equivalents $24,231,019 $- $24,231,019 $-
Stocks        
Financial services 27,697,797 6,467,047 - 21,230,750
Oil & gas 8,522,553 8,522,553 - -
Technology 8,378,531 8,378,531 - -
Health care 7,755,719 7,755,719 - -
Banks 7,316,092 7,316,092 - -
Manufacturing 6,137,339 6,137,339 - -
Computers 5,263,130 5,263,130 - -
Energy 5,238,723 5,238,723 - -
Telecommunications 4,805,483 4,805,483 - -
Energy 4,390,050 4,390,050 - -
Other 72,827,761 72,827,761 - -
Corporate bonds 41,501,108 - 39,501,108 2,000,000
U.S. Government and government agency obligations 25,439,469 - 25,439,469 -
Mutual funds        
Fixed income fund 17,713,135 17,713,135 - -
Other 540,169 540,169 - -
Limited partnership        
Attalus Multi Strategy FD LTD 18,310,434 - - 18,310,434
Common Collective Trusts        
AFL-CIO HIT 15,252,175 - - 15,252,175
103-12 entities        
Real Estate 54,647,719 - - 54,647,719
Equity 14,105,315 - 14,105,315 -
Fixed Income 31,630,206 - 31,630,206 -
  $401,703,927 $155,355,732 $136,907,117 $109,441,078


Changes in Level 3 Category Corporate Bonds and Notes Limited
Partnerships
103-12 Entities Stocks AFL-CIO
Housing
Investment
Trust
Total
Beginning balance –
7/1/2010
$1,999,920 $17,432,466 $- $22,730,750 $14,630,401 $56,793,537
Net gains (losses)
(realized/unrealized)
80 877,968 2,020,265 - 621,774 3,520,087
Purchases, issuances,
settlements
- - 52,627,454 (1,500,000) - 51,127,454
Transfers in/out
Level 3
- - - - - -
Ending balance –
6/30/2011
$2,000,000 $18,310,434 $54,647,719 $21,230,750 $15,252,175 $111,441,078

The following is a summary of the inputs used as of June 30, 2010, in valuing investments carried at fair value:


Description Total Investments at
June 30, 2010
Quoted Market Prices for Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Short-term cash investments $18,630,850 $ - $18,630,850 $ -
Government and government
agency obligations
23,977,671 10,399,428 11,578,323 1,999,920
Corporate bonds and notes 30,045,696 - 30,045,696 -
Stocks 148,022,446 125,291,696 - 22,730,750
Mortgage loans 42,803,935 - 42,803,935 -
Mutual funds 17,340,710 17,340,710 - -
103-12 entities 40,495,056 - 40,495,056 -
Limited partnership 17,432,466 - - 17,432,466
AFL-CIO Housing Investment Trust 14,630,401 - - 14,630,401
  $353,379,231 $153,031,834 $143,553,860 $56,793,537


Changes in Level 3 Category Corporate Bonds and Notes Limited
Partnerships
Stocks AFL-CIO
Housing
Investment
Trust
Total
Beginning balance –
7/1/2009
$1,999,920 $26,689,732 $22,730,750 $13,594,494 $65,014,896
Net gains (losses)
(realized/unrealized)
- 1,288,734 - 409,924 1,698,658
Purchases, issuances,
settlements
- (10,546,000) - 625,983 (9,920,017)
Transfers in/out
Level 3
- - - - -
Ending balance –
6/30/2010
$1,999,920 $17,432,466 $22,730,750 $14,630,401 $56,793,537

Net gains (losses) (realized /unrealized) reported above are included in net appreciation (depreciation) in fair value of investments in the statement of activities for the year ended June 30, 2011 and 2010. The amount of the net gains related to investments held at June 30, 2011 and 2010 was $3,520,087 and $1,698,658, respectively.

The Housing Investment Trust is a registered investment company which has a principal investment strategy that is to construct and manage a portfolio composed primarily of mortgage securities, with higher yield, higher credit quality and similar interest rate risk as the Barclays Capital Aggregate Bond index. The investee uses a variety of strategies to maintain a risk profile comparable to its benchmark index. These strategies include, but are not limited to, managing the duration (a measure of interest rate sensitivity) of the investee's portfolio within a range comparable to the benchmark index, and managing prepayment risk by negotiating prepayment restrictions for mortgage securities backed by multi-family housing projects, including market-rate housing, low-income housing, housing for the elderly or handicapped, intermediate care facilities, assisted living facilities and nursing homes (collectively, "Multifamily Projects").

The objective of investment in INDURE, LLC, which is shown above as 103-12 entity, is to generate income and return through real estate investments. Redemptions from the Fund are limited to 20% of the net asset value of a shareholder's total investment.

Note 4. Securities Lending Program

The International Union entered into an agreement with the bank that acts as custodian for the International Union's investments which authorized the bank to lend securities held in the International Union's accounts to third parties. Effective March 2011, the securities lending program was terminated.

The International Union received 70% of the net revenue derived from the securities lending activities, and the bank received the remainder of the net revenue. "Interest" reported in the consolidated statements of activities includes $33,100 and $51,510 earned by the International Union during the years ended June 30, 2011 and 2010, respectively, in connection with the securities lending program.

Under this program, the bank obtained collateral from the borrower in the form of cash, letters of credit issued by an entity other than the borrower, or acceptable securities. Both the collateral and the securities loaned were marked-to-market on a daily basis so that all loaned securities were fully collateralized at all times. In the event that the loaned securities were not returned by the borrower, the bank would, at its own expense, either replace the loaned securities or, if unable to purchase those securities on the open market, credit the International Union's accounts with cash equal to the fair value of the loaned securities.

The International Union's securities lending activities were collateralized as described above, and the terms of the securities lending agreement with the custodial bank required the bank to comply with government rules and regulations related to the lending of securities; however, the securities lending program involved both market and credit risk. In this context, market risk refers to the possibility that the borrower of securities will be unable to collateralize the loan upon a sudden material change in the fair value of the loaned securities or the collateral, or that the bank's investment of cash collateral received from the borrowers of the International Union's securities may be subject to unfavorable market fluctuations. Credit risk refers to the possibility that counterparties involved in the securities lending program may fail to perform in accordance with the terms of their contracts. At June 30, 2011 and 2010, the fair value of the collateral held was as follows:


 
2011
2010
Cash $ – $22,134,402

The fair value of securities loaned was $ -0- and $21,612,796, respectively. In accordance with current accounting standards the value of the cash collateral held and a corresponding liability to return the collateral have been reported in the accompanying statements of financial position.

Note 5. Pension Plans

The International Union maintains two defined benefit pension plans to cover all of its employees. Employer contributions to the plans are based on actuarial costs as calculated by the actuary. The actuarial valuations are based on the unit credit cost method as required under the Pension Protection Act of 2006.

The annual measurement date is June 30. The net periodic pension cost for the plans for the years ended June 30, 2011 and 2010 is summarized as follows:


 
2011
2010
Service cost $9,803,305 $10,480,578
Interest cost 18,783,959 18,016,627
Expected return on plan assets (16,047,527) (14,535,751)
Net amortization of (gain) loss 7,388,297 7,715,328
Net amortization of prior service costs 1,148,210 1,927,779
Net periodic pension cost $21,076,244 $23,604,561


Included in net periodic pension cost for 2011 and 2010 is $1,148,210 and $1,927,779, respectively, representing the amortization of amounts previously recognized as changes in unrestricted net assets but not included in net periodic pension cost when they arose. The amount expected to be amortized into net periodic pension cost for 2012 is $43,347. Total amounts recognized as changes in unrestricted net assets separate from expenses and reported in the statement of activities as pension-related changes other than net periodic pension cost for the years ended June 30, 2011 and 2010 are as follows:

 
2011
2010
Net actuarial gain $23,224,115 $13,881,710
Amortization of prior service cost 1,148,210 1,927,779
  $24,372,325 $15,809,489


Amounts that have not yet been recognized as components of net periodic pension cost as of June 30, 2011 consist of the following:

Net actuarial loss $72,954,633
Net prior service cost 79,927
  $73,034,560


The net periodic pension cost is based on the following weighted-average assumptions at the beginning of the year:

 
2011
2010
Discount rate 6.00% 6.00%
Average rate of compensation increase 5.00% 5.00%
Expected long-term rate of return on plan assets 7.00% 7.00%


The plans' obligations and funded status as of June 30, 2011 and 2010 are summarized as follows:

 
2011
2010
Fair value of plan assets $294,329,444 $242,412,384
Projected benefit obligation 359,640,265 329,244,996
Deficiency of plan assets over projected benefit obligation $65,310,821 $86,832,612


Benefit obligations are based on the following weighted average assumptions at the end of the year:

 
2011
2010
Discount rate 6.00% 6.00%
Average rate of compensation increase 5.00% 5.00%


Employer contributions, employee contributions and benefit payments for the years ended June 30, 2011 and 2010 were as follows:

 
2011
2010
Employer contributions $18,225,710 $20,351,815
Employee contributions 886,341
260,758
Benefit payments 21,688,396 21,214,249


Total expected employer contributions for the year ending June 30, 2012 are $17.2 million. Total expected benefit payments for the next 10 fiscal years are as follows:

Year Ending June 30, 2012 $22,461,217
2013 22,904,297
2014 23,609,373
2015 24,330,433
2016 25,193,923
Years 2017 - 2021 136,386,423


The expected long-term rate of return on plan assets of 7% reflects the average rate of earnings expected on plan assets invested or to be invested to provide for the benefits included in the benefit obligations. The assumption has been determined by reflecting expectations regarding future rates of return for plan investments, with consideration given to the distribution of investments by asset class and historical rates of return for each individual asset class.

Total pension plan weighted-average asset allocations at June 30, 2011 and 2010, by asset category, are as follows:


 
2011
2010
Asset category    
Cash and cash equivalents 5% 4%
Equity securities 65% 60%
Debt securities 25% 17%
Real estate and other 5% 19%
100% 100%


The plans' investment strategies are based on an expectation that equity securities will outperform debt securities over the long term, and that the plans should maximize investment return while minimizing investment risk through appropriate portfolio diversification. All investments are actively managed by a diversified group of professional investment managers, whose performance is routinely evaluated by a professional investment consultant. Target allocation percentages are 60% for equities, 25% for fixed income securities, 10% for real estate, and 5% for other investments (principally limited partnerships).

The International Union maintains a Supplemental Plan under Internal Revenue Code Section 457 to pay pension benefits required under its Constitution that cannot be paid from its qualified defined benefit plans. The liability for amounts due under the Supplemental Plan have been actuarially determined and total $519,248 and $431,919 as of June 30, 2011 and 2010, respectively. The International Union also contributes to a multiemployer defined benefit pension plan on behalf of its employees. Contributions to this plan were $864,733 and $811,039 for the years ended June 30, 2011 and 2010, respectively.

Note 6. Postretirement Benefits

In addition to providing pension benefits, the International Union provides certain health care, life insurance and legal benefits for substantially all employees who reach normal retirement age while working for the International Union.

Postretirement benefit costs for the years ended June 30, 2011 and 2010 include the following components:


 
2011
2010
Service cost $5,839,000 $5,875,336
Interest cost 9,266,000 9,306,327
Amortization of prior service cost (342,000)
Total postretirement benefit cost $14,763,000 $15,181,663


The accumulated postretirement benefit obligation and funded status at June 30, 2011 and 2010 are as follows:


 
2011
2010
Postretirement benefit obligation $160,252,000 $161,089,787
Fair value of plan assets - -
Excess of postretirement benefit obligation over plan assets $160,252,000 $161,089,787


The above postretirement benefit cost does not represent the actual amount paid (net of estimated Medicare Part D subsidies) of $6,319,000 and $6,042,000 for the years ended June 30, 2011 and 2010, respectively. The net actuarial loss that will be amortized from unrestricted net assets into net periodic benefit cost during 2012 is $7,860,000.

Weighted-average assumptions used to determine net postretirement benefit cost at beginning of year:


 
2011
2010
Discount rate 6.00% 6.00%


Weighted-average assumptions used to determine benefit obligations at end of year:


 
2011
2010
Discount rate 6.00% 6.00%


The assumed health care cost trend rates used to measure the expected cost of benefits for the year ended June 30, 2011, were assumed to increase by 10% for medical, 10% for drugs, 10% for Medicare Part D subsidy, 5.5% for dental/vision, 6% for Medicare Part B premiums, and 3% for legal costs. Thereafter, rates for increases in medical, dental, drug costs and the Medicare Part D subsidy were assumed to gradually decrease until they reach 5.5% after 2025. If the assumed rates increased by one percentage point it would increase the benefit obligation and net periodic benefit cost as of June 30, 2011 by $23,410,000 and $2,652,000, respectively. However, if the assumed rates decreased by one percentage point it would decrease the benefit obligation and net periodic benefit cost as of June 30, 2011 by $19,239,000 and $2,123,000, respectively.

Total expected benefit payments, net of Medicare Part D subsidies, for the next 10 fiscal years are as follows:


Year Ending June 30, 2012 $7,200,000
2013 7,608,000
2014 8,136,000
2015 8,667,000
2016 9,266,000
Years 2017 - 2021 55,353,000


The International Union appropriated investments of $160,252,000 at June 30, 2011 to pay for future postretirement benefit costs.

Note 7. Mortgages Payable

The IBEW Headquarters Building LLC (the "Company") has two mortgages payable, $40 million to Massachusetts Mutual Life Insurance Company and $40 million to New York Life Insurance Company, secured by substantially all of the Company's assets. The mortgage loans bear interest at an annual rate of 5.63% and are payable in monthly installments of principal and interest totaling $529,108, and mature on July 1, 2019, at which time the remaining principal and interest amounts of $37,191,698 are due in full. Future minimum payments on the mortgage obligations are due as follows:


Year Ending June 30, 2012 $6,349,296
2013 6,349,296
2014 6,349,296
2015 6,349,296
2016 6,349,296
Thereafter 56,239,603
  87,986,083
Less interest portion 23,547,009
  $64,439,072


Note 8. Royalty Income

The International Union has entered into a multi-year License Agreement and a List Use Agreement with the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) under which the AFL-CIO has obtained rights to use certain intangible property belonging to the International Union, including the rights to use the name, logo, trademarks and membership lists of the International Union, in exchange for specified royalty payments to be paid to the International Union by the AFL-CIO. In turn, the AFL-CIO has sub-licensed the rights to use the International Union intangible property to Household Bank Nevada, N.A., for use by the bank in connection with its marketing of credit card and certain other financial products to members of the International Union. These agreements commenced on March 1, 1997. For the years ended June 30, 2011 and 2010 the International Union recognized as revenue $1,800,070 and $1,645,915, respectively.

Note 9. Functional Expenses

Current accounting standards require that the International Union's net assets and its revenues, expenses, gains and losses be classified between unrestricted, temporarily restricted, and permanently restricted based on the existence or absence of donor imposed restrictions. For the years ended June 30, 2011 and 2010 all of the net assets and activities of the International Union were classified as unrestricted due to the nonexistence of donor imposed restrictions. These standards also require that the International Union expenses be classified on a functional basis, that is, expenses broken down into classifications that reflect the purpose (or function) of the major services and activities conducted by the International Union.

Note 10. Litigation

The International Union is a party to a number of routine lawsuits, some involving substantial amounts. In all of the cases, the complaint is filed for damages against the International Union and one or more of its affiliated local unions. The General Counsel is of the opinion that these cases should be resolved without a material adverse effect on the financial condition of the International Union.

Note 11. Related Party Transactions

The IBEW provides certain administrative services to the International Brotherhood of Electrical Workers' Pension Benefit Fund (Fund), for which the International Union is reimbursed. These services include salaries and benefits, rent, computer systems, and other administrative services. The amount reimbursed totaled $3,150,000 and $3,300,000, for the years ended June 30, 2011 and 2010, respectively.

In addition, the International Union collects and remits contributions received on behalf of the Fund from members.

The International Union also pays administrative services on behalf of the Pension Plan for the International Officers, Representatives and Assistants of the International Brotherhood of Electrical Workers, and the Pension Plan for Office Employees of the International Brotherhood of Electrical Workers. The administrative services include auditing, legal and actuarial services. The costs of the administrative services are not readily determinable.

Note 12. Operating Leases

The International Union, through its wholly-owned subsidiary IBEW Headquarters Building, LLC, has entered into agreements to lease space in its building. In addition, the International Union subleases a portion of its office space. These leases, which expire at various dates through 2025, contain renewal options. Future minimum rental payments, excluding the lease payments due from the International Union, due under these agreements are as follows:


Year Ending June 30, 2012 $10,921,232
2013 10,865,483
2014 8,755,158
2015 7,578,589
2016 4,698,761
Thereafter 15,014,106

Note 13. Risks and Uncertainties

The International Union invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statement of net assets available for benefits.