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HomeMy WebLinkAbout2013 Deferred Comp Plan TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN FINANCIAL STATEMENTS December 31, 2013 and 2012 TABLE OF CONTENTS Page MANAGEMENT'S DISCUSSION AND ANAYLSIS........ ........................................... 1-3 INDEPENDENT AUDITORS' REPORT ..-.. .............. ....................... 4-5 FINANCIAL STATEMENTS Statements of Net Assets Available for Benefits..................................................,.. 6 Statement of Changes in Net Assets Available For Benefits,................................ 7 Notes to Financial Statements.......................................................... .................. . 8-15 -1- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN Management's Discussion and Analysis The statement of net assets available for plan benefits and the statement of changes in net assets available for plan benefits provide information about the financial status of the Town of Southold Deferred Compensation Plan (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 incurred regardless of when cash is received or paid. The following 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 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 $14,602,181 at December 31, 2013 compared to $11,599,846 at December 31, 2012. The increase of $3,002,335 (26%) during the year ended December 31, 2013 is primarily the result of appreciation in the fair value of invested assets. Contributions from participants excluding rollovers were $728,458 in 2013 and $704,776 in 2012. The 2013 contributions increased 3% from the 2012 contributions. The Plan's loans to participants were $243,610 in 2013 and $221,614 in 2012. This increase of 10% is mainly due to an increase in participants borrowing from the Plan. Summarized Financial Statement Information December 31, 2013 2012 Net assets available for benefits $ 14,602,181 $ 11,599 846 Increase in net assets available for benefits $ 3,002,335 $ 1.586.067 -2- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN Management's Discussion and Analysis Plan Additions Percentage 2013 2012 Chanqe Employee contributions $ 728,458 $ 704,776 2% Rollovers and transfers, net 20,251 40,57: (50%) 748,709 745,349 0% Appreciation in fair value of investments 2,473,437 1,261,956 96% Interest income on notes receivable from participants 10,095 8,367 20% 2,483.532 1,270.323 96% Total additions to net assets $ 3,232,241 $ 2,015,672 60% Plan Deductions Percentage 2013 2012 Chanae Distributions to participants and beneficiaries $ 228,968 $ 428,904 (47%) Administrative expenses 938 701 33% Average Rate of Return 2013 2012 Appreciation in fair value of investments $ 2,473,437 $ 1,261,956 Average plan assets 12,868,402 10,806,812 Rate of return on average plan assets 19.2% 11.6% -3- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN Management's Discussion and Analysis 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, 2013 was $17,500 ($23,000 if the employee is age 50 or older). Due to the demographics of the Town of Southold's ("the Town") employee base, the amount 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 hoped 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, NY 11971 -4- ��I III"��°1111111 R CERTIFIED PUBLIC ACCOUNTANTS INDEPENDENT AUDITORS' REPORT To the Board of Directors Town of Southold Southold, New York Report on the Financial Statements We were engaged to audit the accompanying financial statements of Town of Southold Deferred Compensation Plan (the "Plan"), which comprise the statements of net assets available for benefits as of December 31, 2013 and 2012 and the related statement of changes in net assets available for benefits for the year ended December 31, 2013, and the related notes to the financial statements. 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 audit 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, the Plan administrator instructed us not to perform, and we did not perform, any auditing procedures with respect to the information summarized in Notes 3, 4 and 5, which was certified by Mass Mutual Retirement Services, the Trustee 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 Trustee holds the Plan's investment assets and executes investment transactions. The Plan Administrator has obtained a certification from the Trustee as of December 31, 2013 and 2012 and for the year ended December 31, 2013, that the information provided to the Plan administrator by the Trustee is complete and accurate. PERSONAL SERVICE.TRUSTED ADVICE. ALBRECHT,VIGGIANO,ZURECK&COMPANY, P.C. - 245 PARK AVENUE, 39TH FLOOR 25 SUFFOLK COURT NEW YORK, NY 10167 HAUPPAUGE, NY 11788-3715 m,� ,„ T.212.792.4075 T. 631.434.9500 F:631.434.9518 www.avz.com INDEPENDENT MEMBER OF BKR INTERNATIONAL -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. 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 the Employee Retirement Income Security Act of 1974. Mxukb V - - - .'k 4 ecloin ,P. 00 11 Hauppauge, New York June 18, 2014 -6- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS December 31, 2013 and 2012 2013 2012 ASSETS Investments at fair value $ 14,358,571 $ 11,378,232 Notes receivable from participants 243 610 221 614 Net Assets Available for Benefits $ 14,602,181 $ 11,599,846 See accompanying notes to the financial statements, -7- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS Year ended December 31, 2013 ADDITIONS: Investment income: Net appreciation in fair value of investments $ 2,473,437 Interest income on notes receivable from participants 10,095 2,483,532 Contributions: Participant 728,458 Rollovers 201251 748,709 Total Additions 3,232,241 DEDUCTIONS: Benefits paid to participants and beneficiaries 228,968 Administrative expenses 938 Total Deductions 229 906 Net Increase 3,002,335 Net Assets Available for Benefits: Beginning of Year 11,5991846 End of Year $ 14,602 181 See accompanying notes to the financial statements. -8- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2013 and 2012 Note 1 — Description of Plan The following description of the Town of Southold Deferred Compensation Plan (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 date of hire. The Plan was created in accordance with Internal Revenue Code Section 457 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. Effective January 1, 2013, the Plan has entered into contract with the Mass Mutual 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. For the year ended December 31, 2012, the Plan entered into a similar contract with the Harford Life Insurance Company ("the Hartford") to administrator the plan. As of January 1, 2013, Mass Mutual acquired the Hartford's retirement plans and all its contracts with the Plan. All of the plan assets previously offered by the Hartford are still offered by Mass Mutual. 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 up to fifteen percent of their annual compensation, as defined by the Plan, not to exceed the maximum amount permitted under the Internal Revenue Code. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. Participants direct the investment of their contributions into various investment options offered by the Plan. Participant Accounts Each participant's account is credited with the participant's contribution and allocations of the Plan earnings, and charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, 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. Vesting Participants are immediately vested in their contributions plus actual earnings thereon. -9- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2013 and 2012 Note 1 — Description of Plan (continued) 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. Investment Options Upon enrollment in the Plan, a participant may direct contributions to a variety of investment options in mutual funds offered by Mass Mutual Retirement Services. Participants may change their investment options throughout the Plan year. Payment of Benefits On termination of service due to death, disability, or retirement, 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. Additionally, participants may request withdrawals for unforeseeable emergencies subject to certain federal rules and regulations. 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. However, 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. The statements of net assets available for benefits present the fair value of the investment contracts from fair value to contract value. The fair value of the benefit responsive investment contracts approximated contract value as of December 31, 2013 and 2012, respectively. 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. Investment Valuation and Income Recognition The Plan's investments are recorded at fair 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. See Note 4 for discussion of fair value measurements. -10- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2013 and 2012 Note 2 — Summary of Significant Accounting Policies (continued) Investment Valuation and Income Recognition (continued) 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, 2013 and 2012. 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 Each participant account is credited with earnings on the underlying investments and charged for administrative expenses to arrive at the net yield on an investment. The Town pays all other administrative expenses. 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. Note 3 — Investments The following present investments that represent five percent or more of the Plan's net assets at December 31: 2013 2012 Mass Mutual Guaranteed Interest Account $ 3,636,466 $ -0- Hartford Guaranteed Interest Account -0- 3,081,474 Hartford Capital Appreciation 1,972,744 1,355,627 Prudential Jenn 20/20 Fund 766,347 640,899 Fidelity Contra Fund 1,468,292 1,221,408 American Funds Growth Fund 838,788 602,324 Janus Balanced Fund 866,375 655,928 9,549,012 7,557,660 Investments representing less than 5% of the Plan's net assets 4,809,559 3,820.572 $ 14,358,571 $11,378,232 -11- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2013 and 2012 Note 3 — Investments (continued) During 2013 and 2012, the Plan's investments (including interest, dividends and gains and losses on investments bought and sold, and held during the year) appreciated in value by approximately $2,473,000 and 1,261,000, respectively, which consists of mutual funds. Note 4 — Fair Value Measurements FASB Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, provides the framework for measuring fair value. That framework 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 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the ASC 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. 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, 2013 and 2012. 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 SEC. The funds are required to publish their daily net asset value (NAV) and transcript at that price. The mutual funds held by the Plan are deemed to be actively traded. -12- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2013 and 2012 Note 4— Fair Value Measurements (continued) Investment contract. Valued at fair-value by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the credit- worthiness of the issuer. The preceding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following table sets forth by level, within the fair value hierarchy, the Plan's investments at fair value: Investments at Fair Value as of December 31, 2013 Level Level Total Mutual funds: Index funds $ 822,752 $ -0- $ 822,752 Balanced funds 2,424,625 -0- 2,424,625 Growth funds 3,992,941 -0- 3,992,941 Value funds 1,128,965 -0- 1,128,965 Fixed income funds 189,364 -0- 189,364 International funds 1,075,338 -0- 1,075,338 Allocation funds 1.088.120 -0- 1,088,120 Total mutual funds 10,722,105 -0- 10,722,105 Investment contract -0- 3,636,466 3,636,466 Total investments at fair value $ 10,722,105 $ 3,636 466 $ 14,358,571 Investments at Fair Value as of December 31, 2012 Level Level Total Mutual funds: Index funds $ 601,178 $ -0- $ 601,178 Balanced funds 1,941,147 -0- 1,941,147 Growth funds 3,036,781 -0- 3,036,781 Value funds 830,475 -0- 830,475 Fixed income funds 239,303 -0- 236,303 International funds 857,657 -0- 857,657 Allocation funds 853,217 -0- 853,217 Total mutual funds 8,359,758 -0- 8,359,758 Investment contract -0- 3.018.474 3,018,474 Total investments at fair value $ 8,359,758 $ 3,018,474 11.378.232 -13- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2013 and 2012 Note 4 - Fair Value Measurements (continued) Level 3 Gains and Losses The following table sets forth a summary of changes in the fair value of the Plan's level 3 assets for the year ended December 31, 2013: Balance, beginning of year $ 3,018,474 Realized gains/ (losses) 118,717 Purchases 875,021 Sales (375,746) Transfers into (out of) Level 3 -0- Balance, end of year $ 3,636,466 Unrealized gains/(losses) from the guaranteed investment contract are not included in the statement of changes in net assets available for benefits as the contract is recorded at contract value for purposes of the net assets available for benefits. Quantitative Information about Significant Unobservable Inputs Used in Level 3 Fair Value Measurements The following table represents the Plan's level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, and the significant unobservable inputs and the ranges of values for those inputs. Principal Range of Valuation Unobservable Significant Weighted Instrument Fair Value Technique Inputs Input Value Averaae Guaranteed Investment $ 3,636,466 Discounted Composite 4.00 N/A Contract Cash Flow Credit Rate -14- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2013 and 2012 Note 5— Investment Contract With Insurance Company The Plan has a fully benefit responsive investment contract with the Mass Mutual Retirement Services ("Mass Mutual") as of December 31, 2013 and had a fully benefit responsive investment contract with Hartford Life Insurance Company ("Hartford") as of December 31, 2012. Effective January 1, 2013 Mass Mutual acquired the Hartford and during 2013 transferred the assets of the investment contract into a similar account maintained by Mass Mutual. For the year ended December 31, 2013, Mass Mutual maintains the contributions in a guaranteed interest general account and for the year ended December 31, 2012, the Hartford maintained the contributions in a guaranteed interest general account. For each guaranteed interest account, the account is credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses. The contract is included in the financial statements at contract value as reported to the Plan. Contract value represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. The investment contract issuer is contractually obligated to repay the principal and a specified interest rate that is guaranteed to the Plan. As described in Note 2, because the investment contract is fully benefit-responsive, contract value is the relevant measurement attribute for that portion of the net assets available for benefits attributable to the investment contract. There are no reserves against contract value for credit risk of the contract issuer or otherwise. The fair value of these investment contracts at December 31, 2013 and 2012 were approximately $3,636,000 and $3,018,000, respectively. The crediting interest rate is based on a formula agreed upon with the issuer, but may not be less than 4%. Such interest rates are reviewed on a semi-annual basis for resetting. Certain events limit the ability of the Plan to transact at contract value with the issuer. Such events include the following: (a) amendments to the Plan documents (including complete or partial Plan termination or merger with another plan), (b) changes to the Plan's prohibition on competing investment options or deletion of equity wash provisions, (c) bankruptcy of the Plan sponsor or other Plan sponsor events (for example, divestitures or spin-offs of a subsidiary) that cause a significant withdrawal from the Plan, or (d) the failure of the trust to qualify for exemption from federal income taxes or any required prohibited transaction exemption under the ERISA. 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. Both fully benefit responsive investment contracts invest in a variety of investment contracts including guaranteed investment contracts. Guaranteed investment contracts generally do not permit the issuer to terminate the agreement prior to the scheduled maturity date. Average yields based on annual earnings and interest rates credited to participants was approximately 4% as of December 31, 2013 and 2012, respectively. -15- TOWN OF SOUTHOLD DEFERRED COMPENSATION PLAN NOTES TO FINANCIAL STATEMENTS December 31, 2013 and 2012 Note 6 — Plan Termination Although it has not expressed any intent to do so, the Board has the right under the Plan to amend, suspend or terminate the Plan and any deferrals there under, 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 7 — Related Party Transactions During the year ended December 31, 2012, certain Plan investments are shares of mutual funds managed by an affiliate of The Hartford Retirement Services LLC, Hartford Life Insurance Company, which provides services to the Plan and, therefore, these transactions qualify as exempt party-in-interest transactions. Effective January 1, 2013, Mass Mutual acquired the Hartford and has maintained all relationships with the Plan. Note 8 —Tax Status The Internal Revenue Service has determined and informed the New York State Deferred Compensation Board by a letter dated September 15, 2011, that the Model Plan implemented by Hartford is designed in accordance with applicable sections of the Internal Revenue Code. Note 9 — Certification The Plan administrator has elected the method of compliance permitted by 29 CFR 2520.103-8 of the Department of Labor's Rules and Regulations for Reporting and Disclosure under ERISA. Accordingly, Mass Mutual Retirement Services certified to the completeness and accuracy of all investments reflected in the accompanying statement of assets available for benefits as of December 31, 2013 and 2012 the related investment activity reflected in the statement of changes in assets available for benefits for the year ended December 31, 2013. Note 10 — 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.