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HomeMy WebLinkAbout2018 Deferred CompDEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE TOWN OF SOUTHOLD FINANCIAL STATEMENTS Years Ended December 31, 2018 and 2017 TABLE OF CONTENTS Page No. MANAGEMENT'S DISCUSSION AND ANALYSIS .................................................... 1-3 INDEPENDENT AUDITORS' REPORT..................................................................... 4-5 FINANCIAL STATEMENTS Statements of Net Assets Available for Benefits 6 Statements of Changes in Net Assets Available for Benefits ................................. 7 Notes to Financial Statements................................................................................ 8-14 -1 - DEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2018 and 2017 The Statements of Net Assets Available for Benefits and the Statements of Changes in Net - Assets Available for Benefits provide information about the financial status of the Deferred Compensation Plan for Employees of the Town of Southold (the "Plan"). These statements include all assets and liabilities using the accrual basis of accounting. Under the accrual basis of accounting, revenue and expenses are recorded when earned or incurred regardless of when cash is received or paid. The following management's discussion and analysis is supplementary information required by the Governmental Accounting Standards Board (GASB) and is intended to provide background and summary information for the Plan. This management's discussion and analysis should be read in conjunction with the financial statements, including notes, which begin on page 6. Financial Highlights Net assets available for benefits amounted to approximately $19,466,000 at December 31, 2018 compared to approximately $20,015,000 at December 31, 2017. During the year ended December 31, 2018, the decrease of approximately $549,000 (3%) is primarily the result of depreciation in the fair value of invested assets offset by increase of employee contributions of approximately $1,177,000 for total net additions of approximately $374,000 less benefits paid of approximately $921,000. Contributions from participants excluding rollovers were approximately $939,000 in 2018 and approximately $921,000 in 2017, which was an increase of 2%. Rollover contributions for the years ended December 31, 2018 and 2017 were approximately $238,000 and '$15,000, respectively, or an increase of 1,447%. The Plan's loans to participants were approximately $311,000 in 2018 and approximately $240,000 in 2017. This increase of 30% is mainly due to more loans to the participants of the Plan. Summarized Financial Statement Information December 31, 2018 2017 Net Assets Available for Benefits $ 19.466.274 $ 20.014,805 (Decrease) Increase in Net Assets Available for Benefits (548.531) $ 2.413.506 1 -2 - DEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE f TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2018 and 2017 Average Rate of Return 2018 2017 (Depreciation) appreciation in fair value of investments $ (816,784) $ 2,983,466 Average plan assets 19,740,540 18.,808,052 Rate of return on average plan assets -4.1% 15.9% Plan Additions Percentage 2018 2017 Change Employee contributions $ 939,402 $ 921,360 2% Rollovers 237,835 15,377 1,447% 1,177,237 936,737 26% Net (depreciation) appreciation in fair value of investments (816,784) 2,983,466 -127% Interest income on notes receivable from participants 13,731 12,669 8% ` J (803,053) 2,996,135 -127% Total Additions to Net Assets $ 374.184 $ 3,932.872 -90% Plan Deductions Percentage 2018 2017 Change Benefits paid to participants and beneficiaries $ 921,319 $ 1,518,153 -39% Administrative expenses 1,396 1,213 15% Average Rate of Return 2018 2017 (Depreciation) appreciation in fair value of investments $ (816,784) $ 2,983,466 Average plan assets 19,740,540 18.,808,052 Rate of return on average plan assets -4.1% 15.9% MCC DEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE TOWN OF SOUTHOLD MANAGEMENT'S DISCUSSION AND ANALYSIS December 31, 2018 and 2017 Decisions and Conditions Expected to Have Significant Impact on the Plan's Future Financial Position The annual maximum contributions during the year ended December 31, 2018 was $18,500 ($24,500 if the employee is age 50 or older). Due to the demographics of the Town of Southold's (the "Town") employee base, the amount r categorized as "employee contributions" should continue to increase in the foreseeable future, as long as participants believe the market will continue to rise and the cost of consumer goods does not significantly decrease the participant's disposable income. Participants understand that the earlier they retire, the longer they will live in retirement and that they will need to supplement their New York State pension. As long as they can afford it (and the closer they get to retirement), they will continue to defer a portion of their current salary into the Plan. The Plan's Third -Party Administrator does offer investment advice or guidance to attract non- participants who have not enrolled because of their lack of expertise in investing, fear of investing in the wrong option, not familiar with asset allocation, etc. The Town is committed to explore options to reach out to non -participants or to educate participants on the importance of reaching their retirement goals. It is the intention of the Town that the fee structure, as well as the Town's policy that allows retirees or terminated employees to stay in the Plan, will encourage former employees to remain in the Plan rather than rollout their account balance to another financial institution. Request for Information This financial report is designed to provide a general overview of the Plan's finances for all those included in the Plan. Questions concerning any of the information provided in this report, or requests for additional financial information should be addressed to: Accounting and Finance Department Deferred Compensation Plan for Employees of the Town of Southold Town Hall Annex P.O. Box 1179 54375 Main Road Southold, New York 11971 y ' -4- 0 CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT To the Board of Directors and Trustees Town of Southold Southold, New York Report on the Financial Statements r We were engaged to audit the accompanying financial statements of the Deferred Compensation Plan for Employees of the Town of Southold (the "Plan"), which comprise the statements of net assets available for benefits as of December 31, 2018 -and 2017 and the related statements of changes in net assets available for benefits for the years then ended, and related notes to the financial statements. v Management's Responsibility for the Financial Statements Management Is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on conducting the audits in accordance with auditing standards generally accepted in the United States of America. Because of the matter described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Basis for Disclaimer of Opinion As permitted by 29 CFR 2520.103-8 of the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 ("ERISA"), the Plan Administrator instructed us not to perform, and we did not perform, any auditing procedures with respect to the information summarized in Note 3 and Note 4, which was certified by MassMutual Retirement Services, the Custodian of the Plan, except for comparing such information with the related information included in the financial statements. We have been informed by the Plan Administrator that the Custodian holds the Plan's investment assets and executes investment transactions. The Plan Administrator has obtained a certification from the Custodian as of December 31, 2018 and 2017 and for the years then ended, that the information provided to the Plan Administrator by the Custodian is complete and accurate. BEYOND THE NUMBERS... ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C. 245 PARK AVENUE, 39TH FLOOR 25 SUFFOLK COURT NEW YORK, NY 10167 HAUPPAUGE, NY 11788-3715 T 212 792 4075 T. 631.434.9500 F: 631.434 9518 www avz com INDEPENDENT MEMBER OF BKR INTERNATIONAL J -5- Disclaimer of Opinion Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on these financial statements. Other Matter The Management's Discussion and Analysis is not a required part of the basic financial statements but is supplementary information and is intended to provide background and summary information for the Plan. This discussion and analysis should be read in conjunction with the financial statements, including notes, which begin on page 1. Report on Form and Content in Compliance with DOL Rules and Regulations The form and content of the information included in the financial statements other than that derived from the information certified by the Trustee, have been audited by us in accordance `-` with auditing standards generally accepted in the United States of America and, in our opinion, are presented in compliance with the Department of Labor's Rules and Regulations for Reporting and Disclosure under ERISA. 6wta& VAS" �. It C Hauppauge, New York June 27, 2019 M DEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE TOWN OF SOUTHOLD STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS December 31, 2018 and 2017 2018 2017 Assets Investments at fair value $ 15,058,817 $ 15,669,491 Investment at contract value 4,096,001 4,105,324 Total Investments 19,154,818 19,774,815 Receivables: Notes receivable from participants 311,456 239,990 Net Assets Available for Benefits $ 19,466,274 $ 20,014,805 See accompanying notes to the financial statements. -7 - DEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE TOWN OF SOUTHOLD STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS Years ended December 31, 2018 and 2017 2018 2017 Additions: Investment income: Net (depreciation) appreciation in fair value of investments $ (816,784) $ 2,983,466 Interest income on notes receivable from participants 13,731 12,669 Contributions: Participants 939,402 921,360 Rollovers 237,835 15,377 1,177,237 936,737 Total Additions 374,184 3,932,872 Deductions: Benefits paid to participants and beneficiaries 921,319 1,518,153 Administrative expenses 1,396 1,213 Total Deductions 922,715 1,519,366 Net (Decrease) Increase (548,531) 2,413,506 Net Assets Available for Benefits: Beginning of Year 20,014,805 17,601,299 End of Year $ 19,466,274 $ 20,014,805 See accompanying notes to the financial statements. DEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS Note 1 - Description of Plan The following description of the Deferred Compensation Plan for the Employees of the Town of Southold (the "Plan") provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. General The Plan is a defined contribution plan available to substantially all of the employees of the Town of Southold (the "Town") upon employment. The Plan was created in accordance with Internal Revenue Code Section 457 of the Internal Revenue Code ("IRC") and is subject to the provisions of the rules and regulations of the New York State Deferred Compensation Board (the "Board"), as amended, and permits the employees to defer a portion of their current salary until future years. The deferred compensation is not available to the employees until termination of employment, retirement, death or unforeseeable financial emergency. The Plan has entered into contract with the MassMutual Retirement Services (the "Administrator") to administer the Plan. The Administrator offers several investment options through various financial organizations, and maintains individual accounts for Plan participants. All amounts deferred under the Plan, all property and rights purchased with such amounts, and all income attributable to such amounts, property, or rights are held in trust for the exclusive benefit of the participants and their beneficiaries and alternate payees pursuant to the trust agreement. Contributions Each year, participants may contribute a minimum of $260 and up to 100% of eligible compensation, as defined by the Plan, not to exceed the maximum amount permitted under the IRC. Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions. An additional catch-up is allowed for previous missed contributions for participants who are within three years of retirement. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans (rollover). Participants direct the investment of their contributions into various investment options offered by the Plan. The Plan currently offers various mutual funds and a fixed annuity contract as investment options for participants. Contributions are subject to certain IRS limitations. Participant Accounts Each participant's account is credited with the participant's contribution and allocations of the Plan earnings. Participant's accounts are charged with an allocation of administrative expenses that are paid by the Plan. Allocations are based on participant earnings or account balances, or specific participant transactions, as defined by the Plan. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account. M DEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS Note 1 - Description of Plan (continued) Vesting Participants are immediately vested in their contributions plus actual earnings thereon. Notes Receivable from Participants Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. The notes are secured by the balance in the participant's account and bear interest at rates which are commensurate with local prevailing rates as determined quarterly by the Plan Administrator. Principal and interest is paid ratably through payroll deductions. Payment of Benefits On termination of service due to death, disability, or retirement, or for other reason, a participant may elect to receive either a lump -sum amount equal to the value of the participant's vested interest in his or her account, or monthly, quarterly, semi-annually or annual installments over a certain period, as defined by the Plan. Participants are eligible for in-service withdrawals for unforeseeable emergencies subject to certain provisions of the IRC. Note 2 - Summary of Significant Accounting Policies Basis of Accounting The financial statements of the Plan are prepared under the accrual method of accounting and present the fiduciary net assets available for Plan benefits and changes in fiduciary net assets for benefits. Investment contracts held by a defined -contribution plan are required to be reported at fair value (except for fully benefit responsive investment contracts, which are reported at contract value). Contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit -responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. -10 - DEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS Note 2 - Summary of Significant Accounting Policies (continued) Investment Valuation and Income Recognition The Plan's investments are recorded at fair value, (except for the fully benefit -responsive investment contract, which is reported at contract value). Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Plan's Deferred Compensation Committee determines the Plan's valuation policies utilizing information provided by the investment advisors, administrative service agencies. See Note 3 for discussion of fair value measurements. Purchases and sales of securities are recorded on a trade -date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex -dividend date. Net appreciation or depreciation includes the Plan's gains and losses on investments bought and sold, as well as held during the year. Notes Receivable from Participants Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Interest Income is recorded on the accrual basis. Related fees are recorded as administrative expenses and expensed when incurred. No allowance for credit losses has been recorded as of December 31, 2018 and 2017. If a participant ceases to make 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 Benefits are recorded when paid. Administrative Expenses Expenses of maintaining the Plan are paid by the Plan, unless otherwise paid by the Town. Expenses that are paid by the Town are excluded from these financial statements. Fees related to the administration of notes receivable from participants are charged directly to the participant's account and are included in administrative expenses. Investment related expenses are included in net appreciation of fair value of investments. Subsequent Events Plan management has evaluated subsequent events through the date of the report, which is the date the financial statements were available to be issued. DEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS Note 3 - Fair Value Measurements The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under the FASB ASC 820 are described as follows: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access. Level 2 Inputs to the valuation methodology include: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in inactive markets; • Inputs other than quoted prices that are observable for the asset or liability; • Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The asset or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2018 and 2017. Mutual funds: Valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-ended mutual funds that are registered with the U.S. Securities and Exchange Commission. The funds are required to publish their daily net asset value (NAV) and transact at that price. The mutual funds held by the Plan are deemed to be actively traded. -12 - DEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS Note 3 - Fair Value Measurements (continued) The following table sets forth by level, within the fair value hierarchy, the Plan's investments at fair value: Assets at Fair Value (Level 1) 2018 2017 Mutual Funds at Fair Value $ 15,058,818 $ 15,669,491 There were no Level 2 or Level 3 assets held by the Plan at December 31, 2018 and 2017. Note 4 - Fully Benefit -Responsive Guaranteed Investment Contract The Plan has a fully benefit responsive investment contract with the MassMutual Retirement Services ("MassMutual"). MassMutual maintains the contributions in a general account that is comprised of guaranteed investment contracts (traditional "GICs") and separate account guaranteed investment contracts (separate account GICs). These contracts meet the fully benefit -responsive investment contract criteria and therefore are reported at contract value. Contract value is the relevant measure for fully benefit -responsive investment contracts because this is the amount received by participants if they were to initiate permitted transactions under the terms of the Plan. Contract value represents contributions made under each contract, plus earnings, less participant withdrawals, and administrative expenses. The traditional investment contract held by the Plan is a guaranteed investment contract. The contract issuer is contractually obligated to repay the principal and interest at a specified interest rate that is guaranteed to the Plan. The crediting rate is based on a formula established by the contract issuer but may not be less than 2.25°/x. The crediting rate is reviewed on a quarterly basis for resetting. The contract cannot be terminated before the scheduled maturity date. The Plan's ability to receive amounts due in accordance with fully benefit -responsive investment contracts is dependent on the third -party issuer's ability to meet its financial obligations. The issuer's ability to meet its contractual obligations may be affected by future economic and regulatory developments. Certain events might limit the Plan's ability to transact at contract value with the contract issuer. These events may be different under each contract. Examples of such events include the ` following: (a) the Plan's failure to qualify under Section 457 of the IRC or the failure of the trust to be tax-exempt under Section 501(a) of the Internal Revenue, (b) premature termination of the contract, (c) Plan termination or merger, (d) changes to the Plan's prohibition on competing investment options, and (e) bankruptcy of the Plan sponsor or other Plan sponsor events (for example, divestitures or spin-offs of a subsidiary) that significantly affect the Plan's normal operations. The Plan Administrator does not believe that any events that would limit the Plan's ability to transact at contract value with Plan participants are probable of occurring. C: • -13 - DEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE TOWN OF SOUTHOLD NOTES TO FINANCIAL STATEMENTS Note 4 - Fully Benefit -Responsive Guaranteed Investment Contract (continued) In addition, certain events allow the issuer to terminate the contracts with the Plan and settle at an amount different from contract value. Those events may be different under each contract. Examples of such events include the following: (a) an uncured violation of the Plan's investment guidelines, (b) a breach of material obligation under the contract, (c) a material misrepresentation, and (d) a material amendment to the agreements without the consent of the issuer. Note 5 - Plan Termination Although it has not expressed any intent to do so, the Board of Trustees has the right under the Plan to amend, suspend or terminate the Plan and any deferrals thereunder, the trust agreement and any investment fund, in whole or in part and for any reason and without consent of any employee, participant, beneficiary, or other person. In the event of Plan termination, all amounts deferred would be payable in accordance with Plan provisions. Note 6 - Party -In -Interest Transactions Certain Plan investments are managed by MassMutual. MassMutual is the Custodian and record keeper for the Plan, and therefore, these transactions qualify as party -in -interest transactions. Note 7 - Tax Status The Plan is structured and follows a model deferred compensation plan, pre -approved by the Internal Revenue Service ("IRS"). The IRS has determined and informed the New York State Deferred Compensation Board by a letter dated September 15, 2011, that the Model Plan implemented by MassMutual is designed in accordance with applicable sections of the IRC. i Accounting principles generally accepted in the United States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more than likely would not be sustained upon examination by the applicable taxing authority. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Note 8 - Certification Certain information related to investments and notes receivable from participants held at December 31, 2018 and 2017 and net (depreciation) appreciation in fair value of investments and interest income for the years then ended, disclosed in the accompanying financial statements, was obtained or derived from information supplied to the Plan Administrator and certified as complete and accurate by MassMutual Retirement Services the Custodian of the Plan. 9 -14 - DEFERRED COMPENSATION PLAN FOR EMPLOYEES OF THE TOWN OF SOUTHOLD • NOTES TO FINANCIAL STATEMENTS Note 9 - Risks and Uncertainties The Plan 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 participants' account balances and the amounts reported in the statement of net assets available for benefits. • Note 10 - Investment Concentrations At December 31, 2018, four of the investments held by the Plan, individually amounted to approximately 10% or more of the net assets available for benefits, and approximately $10,545,000 or 54% in the aggregate. At December 31, 2017, three of the investments held by the Plan, individually amounted to approximately 10% or more of the net assets available for benefits, and approximately $9,446,000 or 47% in the aggregate.