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HomeMy WebLinkAbout2015 Deferred Comp 11111111' DMMPN 0000001601Nk000u000011A II II 1111111111111111111111111111111111111111 11111 1 1111111111111111111111°°111111111P 111111111111111 1111111111111111111111111111111111111111111111111111111111111111000111111 10011111111111111111111111111111111111111111 111100000000000011 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 1111111111111111111111111111 1 11111111111 unilli 110060,00010 164141 1111111111111 . '111111111111111111111111111'11111' , ',00000000004011, 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. -14- 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.