HomeMy WebLinkAbout2015 Deferred Comp 11111111'
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CERTIFIED PUBLIC ACCOUNTANTS
June 7, 2016
Mr. John Cushman, Town Comptroller
Town of Southold Deferred Compensation Plan
Main Road
Southold, New York 11971
In planning and performing our audit of the financial statements of Town of Southold
Deferred Compensation Plan (the "Plan") as of and for the year ended December 31, 2015,
in accordance with auditing standards generally accepted in the United States of America,
we considered the Plan's internal control over financial reporting (internal control) as a basis
for designing audit procedures that are appropriate in the circumstances for the purpose of
issuing our report on the financial statements, but not for the purpose of expressing an
opinion on the effectiveness of the Plan's internal control. Accordingly, we do not express
an opinion on the effectiveness of the Plan's internal control.
During our audit of the Plan we became aware of a condition that require strengthening of
the Plan's internal controls for operating efficiency and compliance with DOL and ERISA
requirements. The condition is summarized below, along with our recommendations
regarding this matter.
Defaulted Loan Deemed a Distribution
While performing audit procedures related to loans, it was noted that there was a loan that
was in default at December 31, 2015 for a participant that was terminated on May 31, 2013.
This loan was not deemed in default during 2015. This defaulted loan was adequately
secured by the participant's account balance however a 1099 was not issued to the
participant in the corresponding year. The loan balance was not removed from the Plan's
financial statements and therefore the defaulted loan remains as part of the participant's
account balance (included in the loans/notes receivable balance of the Plan). We were
informed by Mass Mutual (the Plan's Third Party Administrative Agency, TPA), in 2013
when last payment for this loan was received, the process was the plan was to inform the
TPA if the loan should be defaulted. Therefore, there were not notices mailed to participant.
Since then TPA have changed the procedure and default loans now will auto default. Since
the participant only had approx. 60 days to pay the loan off in full, the loan will need to be
defaulted. The loan was deemed a distribution in 2016 and TPA will issue a 1099 in 2016.
We recommend that Plan management monitor the service provider to ensure loan defaults
are accounted for properly. Upon default, the loan balance should be removed from the
Plan financial statements and accounted for as a deemed distribution of Plan assets.
PERSONAL SERVICE.TRUSTED ADVICE. ^4I��.
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 7: 631.434.9500 F: 631.434.9518
www.avz.com
INDEPENDENT MEMBER OF BKR INTERNATIONAL
To the Management of the
Town of Southold Deferred Compensation Plan
Page 2
This communication is intended solely for the information and use of Plan management and
others within the Plan, and is not intended to be and should not be used by anyone other
than these specified parties.
, ,--",44 4
Hauppauge, New York
June 7, 2016
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CERTIFIED PUBLICACCOUNTANTS
N
June 7, 2016
Mr. John Cushman, Town Comptroller
Town of Southold Deferred Compensation Plan
Main Road
Southold, New York 11971
We have conducted a DOL limited-scope audit of the financial statements of Town of Southold
Deferred Compensation Plan ("the Plan") as of and for the year ended December 31, 2015 and have
issued our report thereon dated June 7, 2016. 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 to those financial
statements. Because of the significance of the information that we did not audit, we are unable to, and
have not, expressed an opinion on those financial statements and supplemental schedules taken as a
whole. We did, however, audit the form and content of the information included in the financial
statements and supplemental schedules, other than that derived from the information certified by the
trustee, in accordance with auditing standards generally accepted in the United States of America and
found them to be presented in compliance with the DOL's Rules and Regulations for Reporting and
Disclosure under ERISA. Professional standards require that we provide you with information about our
responsibilities under generally accepted auditing standards, as well as certain information related to
the planned scope and timing of our audit. We have communicated such information in our letter to you
dated January 7, 2016. Professional standards also require that we communicate to you the following
information related to our audit:
Significant Audit Finding
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the Plan are described in Note 2 to the financial statements. No new
accounting policies were adopted and the application of existing policies was not changed during 2015.
We noted no transactions entered into by the Plan during the year for which there is a lack of
authoritative guidance or consensus. All significant transactions have been recognized in the financial
statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by
management and are based on management's knowledge and experience about past
and current events and assumptions about future events. Certain accounting estimates
are particularly sensitive because of their significance to the financial statements and
because of the possibility that future events affecting them may differ significantly from
those expected.
PERSONAL SERVICE.TRUSTED ADVICE. 4
ALBRECHT,VIGGIANO,ZURECK&COMPANY, P.C.
245 PARK AVENUE,39TH FLOOR 25 SUFFOLK COURT
NEW YORK, NY 10167 HAUPPAUGE, NY 11788-3715
7:212 792 4075 T: 631 434 9500 F:631.434.9518
www.avz.com
INDEPENDENT MEMBER OF BKR INTERNATIONAL
.......................................
Mr. John Cushman, Town Comptroller
Town of Southold Deferred Compensation Plan
Page 2 of 2
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing our
audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all misstatements identified during the audit, other
than those that are clearly trivial, and communicate them to the appropriate level of management.
There were no such misstatements.
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, or
auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial
statements or the auditor's report. We are pleased to report that no such disagreements arose during
the course of our audit.
Management Representations
We have requested certain representations from management that are included in the management
representation letter dated June 7, 2016.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation
involves application of an accounting principle to the Plan's financial statements or a determination of
the type of auditor's opinion that may be expressed on those statements, our professional standards
require the consulting accountant to check with us to determine that the consultant has all the relevant
facts. To our knowledge, there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and
auditing standards, with management each year prior to retention as the Plan's auditors. However,
these discussions occurred in the normal course of our professional relationship and our responses
were not a condition to our retention.
Other Matters
This information is intended solely for the use of trustees and management of The Town of Southold
Deferred Compensation Plan and is not intended to be, and should not be, used by anyone other than
these specified parties.
Very truly yours,
Albrecht, Viggiano, Zureck & Company, P.C.
RECEIVED
JUN 1 6 2G
Southold Town Clerk
TOWN OF SOUTHOLD
DEFERRED COMPENSATION PLAN
FINANCIAL STATEMENTS
Years Ended December 31, 2015 and 2014
TABLE OF CONTENTS
Page
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-
TOWN OF SOUTHOLD
DEFERRED COMPENSATION PLAN
Management's Discussion and Analysis
The statements of net assets available for plan benefits and the statements 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 earned or 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 approximately $16,050,000 at December 31,
2015 compared to approximately $15,950,000 at December 31, 2014. The increase of
approximately $100,000 (1%) during the year ended December 31, 2015 is primarily the result
of appreciation in the fair value of invested assets and employee contributions of
approximately $1,050,000 less benefits paid of approximately $950,000.
Contributions from participants excluding rollovers were approximately $731,000 in 2015 and
approximately $665,000 in 2014, which was an increase of 10% from the 2014 contributions.
Rollover contributions were approximately $117,000 in 2015. There were no rollovers
contributions in 2014.
The Plan's loans to participants were approximately $253,000 in 2015 and approximately
$294,000 in 2014. This decrease of 14% is mainly due to repayments on borrowings from the
Plan.
Summarized Financial Statement Information
December 31,
2015 2014
Net assets available for benefits $ 16.051.683 $ 15.951.731
Increase in net assets available
for benefits $ 99.952 $ 1.349.550
-2-
TOWN OF SOUTHOLD
DEFERRED COMPENSATION PLAN
Management's Discussion and Analysis
Plan Additions
Percentage
2015 2014 Change
Employee contributions $ 731,519 $ 664,862 10%
Rollovers 117,659 -0-
849,178 664,862 28%
Appreciation in fair value of
investments 188,512 889,946 (79%)
Interest income on notes receivable
from participants 10,630 9,676 10%
199,142 899,622 (78%)
Total additions to net assets $ 1,048,320 $ 1,564,484 (33%)
Plan_ Deductions
Percentage
2015 2014 Change
Benefits paid to participants
and beneficiaries $ 947,293 $ 213,984 343%
Administrative expenses 1,075 950 13%
Average Rate of Return
2015 2014
Appreciation in fair value of
investments $ 188,512 $ 889,946
Average plan assets 16,001,707 15,276,956
Rate of return on average
plan assets 1.2% 5.8%
-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, 2015 was $18,000
($24,000 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-
rffl
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
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, 2015 and 2014 and the related statements of changes in net assets
available for benefits for the years then ended, and 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
L' 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 and 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, 2015 and 2014 and for the years then ended, that the information provided to the
Plan administrator by the Custodian is complete and accurate.
PERSONAL SERVICE.TRUSTED ADVICE. a
ALBRECHT,VIGGIANO,ZURECK&COMPANY, PC.
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
-5-
Disclaimer of Opinion
t 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.
ateAlLatb ylea,vo.- , 3L. tconic?.
Hauppauge, New York
June 7, 2016
-6-
TOWN OF SOUTHOLD
DEFERRED COMPENSATION PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2015 and 2014
2015 2014
Assets
Investments at fair value $ 12,423,451 $ 12,079,831
Investment at contract value 3,374,620 3,577,590
Total Investments 15,798,071 15,657,421
Receivables:
Notes receivable from participants 253,612 294,310
Total Receivables 253,612 294,310
Net Assets Available for Benefits $ 16,051,683 $ 15,951,731
See accompanying notes to the financial statements.
-7-
TOWN OF SOUTHOLD
DEFERRED COMPENSATION PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Years Ended December 31, 2105 and 2014
2015 2014
Additions:
Investment income:
Net appreciation in fair value of investments $ 188,512 $ 889,946
Interest income on notes receivable from participants 10,630 9,676
Contributions:
Participants 731,519 664,862
Rollovers 117,659 -0-
849,178 664,862
Total Additions 1,048,320 1,564,484
Deductions:
Benefits paid to participants and beneficiaries 947,293 213,984
Administrative expenses 1,075 950
Total Deductions 948,368 214,934
Net Increase 99,952 1,349,550
Net Assets Available for Benefits:
Beginning of Year 15,951,731 14,602,181
End of Year $ 16,051,683 $ 15,951,731
See accompanying notes to the financial statements.
-8-
TOWN OF SOUTHOLD
DEFERRED COMPENSATION PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
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 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
Internal Revenue Code. 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.
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, 2015 and 2014
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.
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 Internal Revenue Code.
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.
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. 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.
-10-
TOWN OF SOUTHOLD
DEFERRED COMPENSATION PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
Note 2 —Summary of Significant Accounting Policies (continued)
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, 2015 and 2014. 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
Certain expenses of maintaining the Plan are paid by the Plan, unless otherwise paid by the
Company. Expenses that are paid by the Company 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.
Reclassifications
Reclassifications are made to the prior year's financial statements whenever necessary to
conform to current year's presentation. Such reclassifications have had no effect on net assets
available for benefits as previously reported.
Recent Accounting Pronouncements
In July 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2015-12, Part (I) Fully Benefit-Responsive Investment Contracts, Part (II) Plan
Investment Disclosures, and Part (III) Measurement Date Practical Expedient. ASU 2015-12 is
effective for all plan years beginning after December 15, 2015. Earlier application of any or all of
the three parts is permitted. Parts I and II of this ASU must be applied retrospectively and Part III
prospectively for all financial statements presented. The Company has elected to early adopt all
three parts of this ASU. The adoption of this standard did not have an impact on the Statements
of Net Assets Available for Benefits and the Statement of Changes in Net Assets Available for
Benefits in total; however, it simplifies the presentation of the fully benefit-responsive investment
contract held by the Plan on the financial statements and the information contained in the
disclosures related to the Plan's 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.
-11-
TOWN OF SOUTHOLD
DEFERRED COMPENSATION PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
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
measurement) and the lowest priority to unobservable inputs (level 3 measurements). 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.
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, 2015 and
2014.
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-
TOWN OF SOUTHOLD
DEFERRED COMPENSATION PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
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)
2015 2014
Mutual funds at fair value $ 12,443,883 $ 12,079,831
There were no level 2 or level 3 assets held by the Plan at December 31, 2015 and 2014.
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 2.5%. 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 Internal Revenue Code 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, (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.
-13-
TOWN OF SOUTHOLD .
DEFERRED COMPENSATION PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
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, (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 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 6 —Related Party 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 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 MassMutual is designed in accordance with applicable sections of
the Internal Revenue Code.
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 or asset 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. The Plan
administrator believes it is no longer subject to income tax examinations for years prior to 2012.
Note 8— Certification
Certain information related to investments and notes receivable from participants held at
December 31, 2015 and 2014 and net 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.
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TOWN OF SOUTHOLD
DEFERRED COMPENSATION PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2015 and 2014
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, 2015, three of the investments held by the Plan, individually amounted to
approximately 10% or more of the net assets available for benefits, and approximately
$8,249,000 or 51% in the aggregate. At December 31, 2014, three of the investments held by
the Plan, individually amounted to approximately 10% or more of the net assets available for
benefits, and approximately$8,369,000 or 52% in the aggregate.