HomeMy WebLinkAbout2016 Deferred Comp DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SOUTHOLD
FINANCIAL STATEMENTS
Years Ended December 31, 2016 and 2015
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
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DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SOUTHOLD
Management's Discussion and Analysis
December 31, 2016 and 2015
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
Deferred Compensation Plan for Employees of the Town of Southold (the Plan). These
statements include all assets and liabilities using the accrual basis of accounting. Under the
accrual basis of accounting, revenue and expenses are recorded when earned or incurred
regardless of when cash is received or paid.
The following management's discussion and analysis is supplementary information required by
the Governmental Accounting Standards Board (GASB) and is intended to provide background
and summary information for the Plan. This management's discussion and analysis should be
read in conjunction with the financial statements, including notes, which begin on page 6.
Financial Highlights
Net assets available for benefits amounted to approximately $17,601,000 at December 31,
2016 compared to approximately $16,051,000 at December 31, 2015. The increase of
approximately $1,550,000 (10%) during the year ended December 31, 2016 is primarily the
result of appreciation in the fair value of invested assets and employee contributions of
approximately $1,978,000 less benefits paid of approximately $428,000.
Contributions from participants excluding rollovers were approximately $830,000 in 2016 and
approximately $732,000 in 2015, which was an increase of 13%. Rollover contributions for the
year ended December 31, 2016 and 2015 were approximately $138,000 and $118,000
respectively, or an increase of 17%.
The Plan's loans to participants were approximately $309,000 in 2016 and approximately
$254,000 in 2015. This increase of 22% is mainly due to additional loans to the participants of
the Plan.
Summarized Financial Statement Information
December 31,
2016 2015
Net Assets available for benefits $ 17,601,299 $ 16,051,683
Increase in net assets available
for benefits $ 15 $ 99,952
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DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SOUTHOLD
Management's Discussion and Analysis
December 31, 2016 and 2015
Plan Additions
Percentage
2016 2015 Change
Employee contributions $ 830,123 $ 731,519 13%
Rollovers 138,205 117,659 17%
968,328 849,178 14%
Appreciation in fair value of
investments 998,775 188,512 430%
Interest income on notes receivable
from participants 10,,969 10,630 3%
1,009,744 199,142 407%
Total additions to net assets $ 1,978,072 $ 1,048,320 89%
Plan Additions
Percentage
2016 2015 Change
Benefits paid to participants
and beneficiaries $ 427,268 $ 947,293 (55%)
Administrative expenses 1,188 1,075 11%
Average Rate of Return
2016 2015
Appreciation in fair value of
investments $ 998,775 $ 188,512
Average plan assets 16,826,491 16,001,707
Rate of return on average
plan assets 5.9% 1.2%
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DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SOUTHOLD
Management's Discussion and Analysis
December 31, 2016 and 2015
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, 2016 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
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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 the Deferred
Compensation Plan for Employees of the Town of Southold (the "Plan"), which comprise the
statements of net assets available for benefits as of December 31, 2016 and 2015 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
America. Because of the matter described in the Basis for Disclaimer of Opinion paragraph,
however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for
an audit opinion.
Basis for Disclaimer of Opinion
As permitted by 29 CFR 2520.103-8 of the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 (ERISA),
the Plan administrator instructed us not to perform, and we did not perform, any auditing
procedures with respect to the information summarized in 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, 2016 and 2015 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. �—
ALBRECHT,VIGGIANO,ZURECK&COMPANY, P.C.
245 PARK AVENUE,39TH FLOOR 25 SUFFOLK COURT
NEW YORK, NY 10167 HAUPPAUGE, NY 11788-3715
T•212 792 4075 T:631.434 9500 F:631.434.9518
www.avz.com
INDEPENDENT MEMBER OF BKR INTERNATIONAL
- 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 ERISA.
Vh� Com,P. L
Hauppauge, New York
June 7, 2017
r
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DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SOUTHOLD
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2016 and 2015
2016 2015
Assets
Investments at fair value $ 13,441,222 $ 12,423,451
Investment at contract value 3,850,598 3,374,620
Total Investments 17,291,820 15,798,071
Receivables:
Notes receivable from participants 309,479 253,612
Total Receivables 309,479 253,612
Net Assets Available for Benefits $ 17,601,299 $ 16,051,683
See accompanying notes to the financial statements.
-7-
DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SOUTHOLD
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2016 and 2015
2016 2015
Additions:
Investment income:
Net appreciation in fair value of investments $ 998,775 $ 188,512
Interest income on notes receivable from participants 10,969 10,630
Contributions:
Participants 830,123 731,519
Rollovers 138,205 117,659
968,328 849,178
Total Additions 1,978,072 1,048,320
Deductions:
Benefits paid to participants and beneficiaries 427,268 947,293
Administrative expenses 1,188 1,075
Total Deductions 428,456 948,368
Net Increase 1,549,616 99,952
Net Assets Available for Benefits:
Beginning of Year 16,051,683 15,951,731
End of Year $ 17,601,299 $ 16,051,683
See accompanying notes to the financial statements.
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DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SOUTHOLD
NOTES TO FINANCIAL STATEMENTS
Note 1 — Description of Plan
The following description of the Deferred Compensation Plan for the Employees of the Town of
Southold (the "Plan") provides only general information. Participants should refer to the Plan
agreement for a more complete description of the Plan's provisions.
General
The Plan is a defined contribution plan available to substantially all of the employees of the
Town of Southold ("the Town") upon employment. The Plan was created in accordance with
Internal Revenue Code Section 457 of the Internal Revenue Code (IRC) and is subject to the
provisions of the rules and regulations of the New York State Deferred Compensation Board
(the "Board"), as amended, and permits the employees to defer a portion of their current salary
until future years. The deferred compensation is not available to the employees until
termination of employment, retirement, death or unforeseeable financial emergency.
The Plan has entered into contract with the MassMutual Retirement Services ("the
Administrator") to administer the Plan. The Administrator offers several investment options
through various financial organizations, and maintains individual accounts for Plan
participants.
All amounts deferred under the Plan, all property and rights purchased with such amounts,
and all income attributable to such amounts, property, or rights are held in trust for the
exclusive benefit of the participants and their beneficiaries and alternate payees pursuant to
the trust agreement.
Contributions
Each year, participants may contribute a minimum of $260 and up to 100% of eligible
compensation, as defined by the Plan, not to exceed the maximum'amount permitted under the
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.
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DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SOUTHOLD
NOTES TO FINANCIAL STATEMENTS
Note 1 — Description of Plan (continued)
Vesting
Participants are immediately vested in their contributions plus actual earnings thereon.
Notes Receivable from Participants
Participants may borrow from their fund accounts a minimum of$1,000 up to a maximum equal
to the lesser of $50,000 or 50% of their vested account balance. The notes are secured by the
balance in the participant's account and bear interest at rates which are commensurate with
local prevailing rates as determined quarterly by the Plan Administrator. Principal and interest is
paid ratably through payroll deductions.
Payment of Benefits
On termination of service due to death, disability, or retirement, or for other reason, a participant
may elect to receive either a lump-sum amount equal to the value of the participant's vested
interest in his or her account, or monthly, quarterly, semi-annually or annual installments over a
certain period, as defined by the Plan. Participants are eligible for in-service withdrawals for
unforeseeable emergencies subject to certain provisions of the IRC.
Note 2—Summary of Significant Accounting Policies
Basis of Accountinq
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.
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DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SOUTHOLD
NOTES TO FINANCIAL STATEMENTS
Note 2—Summary of Significant Accounting Policies (continued)
Investment Valuation and Income Recognition
The Plan's investments are recorded at fair value, (except for the fully benefit-responsive
investment contract, which is reported at contract value). Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The Plan's Deferred Compensation Committee
determines the Plan's valuation policies utilizing information provided by the investment
advisors, administrative service agencies. See Note 3 for discussion of fair value
measurements.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation
or depreciation includes the Plan's gains and losses on investments bought and sold as well as
held during the year.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any
accrued but unpaid interest. Interest Income is recorded on the accrual basis. Related fees
are recorded as administrative expenses and expensed when incurred. No allowance for credit
losses has been recorded as of December 31, 2016 and 2015. If a participant ceases to
make loan repayments and the plan administrator deems the participant loan to be in default,
the participant loan balance is reduced and a benefit payment is recorded.
Payment of Benefits
Benefits are recorded when paid.
Administrative Expenses
Expenses of maintaining the Plan are paid by the Plan, unless otherwise paid by the Town.
Expenses that are paid by the Town are excluded from these financial statements. Fees related
to the administration of notes receivable from participants are charged directly to the participant's
account and are included in administrative expenses. Investment related expenses are included
in net appreciation of fair value of investments.
Subsequent Events
Plan management has evaluated subsequent events through the date of the report, which is the
date the financial statements were available to be issued.
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DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SOUTHOLD
NOTES TO FINANCIAL STATEMENTS
Note 3 — Fair Value Measurements
The framework for measuring fair value provides a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (level 1 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, 2016 and
2015.
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.
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DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SOUTHOLD
NOTES TO FINANCIAL STATEMENTS
Note 3 — Fair Value Measurements (continued)
The following table sets forth by level, within the fair value hierarchy, the Plan's investments at
fair value:
Assets at Fair Value (Level 1)
2016 2015
Mutual funds at fair value $ 13,441,222 $ 12,423,451
There were no level 2 or level 3 assets held by the Plan at December 31, 2016 and 2015.
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 IRC or the failure of the trust
to be tax-exempt under Section 501(a) of the Internal Revenue, (b) premature termination of
the contract, (c) Plan termination or merger, (d) changes to the Plan's prohibition on
competing investment options, (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 -
DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SOUTHOLD
NOTES TO FINANCIAL STATEMENTS
Note 4— Fully Benefit-Responsive Guaranteed Investment Contract (continued)
In addition, certain events allow the issuer to terminate the contracts with the Plan and settle at
an amount different from contract value.
Those events may be different under each contract. Examples of such events include the
following: (a) an uncured violation of the Plan's investment guidelines, (b) a breach of material
obligation under the contract, (c) a material misrepresentation, (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 IRC.
Accounting principles generally accepted in the United States of America require Plan
management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan
has taken an uncertain position that more than likely would not be sustained upon examination
by the applicable taxing authority. The Plan is subject to routine audits by taxing jurisdictions;
however, there are currently no audits for any tax periods in progress.
Note 8 —Certification
Certain information related to investments andotes receivable from participants held at
December 31, 2016 and 2015 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 t e Custodian of the Plan.
- 14 -
DEFERRED COMPENSATION PLAN
FOR EMPLOYEES OF THE
TOWN OF SO U THOLD
NOTES TO FINANCIAL STATEMENTS
Note 9— Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to
various risks such as interest rate, market, and credit risks. Due to the level of risk associated
with certain investment securities, it is at least reasonably possible that changes in the values
of investment securities will occur in the near teem 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, 2016, three of the investments held by the Plan, individually amounted to
approximately 10% or more of the net assets available for benefits, and approximately
$8,624,000 or 49% in the aggregate. At Decembe 31, 2015, three of the investments held by
the Plan, individually amounted to approximately 0% or more of the net assets available for
benefits, and approximately$8,249,000 or 51% int the aggregate.