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HomeMy WebLinkAbout0377_001Village of a u n t Prospect 1, 111 Mount Prospect, Illinois dA ............ INTEROFFICE MEMORANDUM TO: Terrance L. Burghard, DATE: SUBJECT: Village Manager David C. Jepson, Finance Director June 19, 1985 Village of Mount Prospect Investment Policy Over the past several years,, scores of governmental units have suffered losses of millions of dollars in investments through the collanse, of fina,ncia] p institutions, the defaults of securities dealers, and in somne cases, poor management practices. The most dramati*c los,ses 'were sustained by S�an Diego, California, Beaumont Texas and"Toledo, Ohio with losses of $60 m�ii1 1 1on,,,$19 million and $17 million respectively, Dozens of other municipaIrities have, been affected by the collapse of Penn Square Bank, and the bankruptcies of' Lombard -Wall Lion Capita1 E 9S, * M fm Bev 1, 1 rest er and others . Ai'di t1 ona 1 l,y!p countless other communities, incIuding the Vill'age, of Mount, Prosp en, bail` ect,, were spared losses when the Federal Governmebaed-out Continental an 'last year. These upheavals, in what previously had been a rather non-descript area of municipal fin.ance, have prompted leg,islators,, the Government Finance Officers nance Association, and other fi'profess onals to call for tighter controls and *cally for written speci flI investment, policies by governmental units of all sizes, It isunderstood that a policy will not in itself prevent losses such as, those mint ioned above, but I I it can help elected and appointed officials to be more a,w,are, of the stewardship responsibilities of managing public funds. Attached is a draft copy of a Proposed Investment Policy for the Village of Mount Prospect. The Policy is based on data from investment policies of other municipalities, textbooks on cash management, and from various investment publications. It is comprehensive, but I believe that it is also realistic and can be implemented. 1 (0 The original draft, copy, of tis , cy has been reviewed by the Finance Commission and, additionally, ' mailed co to the Village's auditors., several finance directors, and ba I antis where wie currently have accounts or who, have expressed an interest in establishing, a banking relationship with the Village. Each of the above -r ups have provided valuabIe comments and suggestions,, and many of the suggestions,have been incorporated in the revised draft that is attached. I am requesting that the Proposed Investment Policy be reviewed by the Village Board and that it then be considered for adoption by resolution as soon as possible. The adoption of the proposed policy will require some significant changes in our current banking and investment procedures, but I believe it will provide safeguards that are in the best interests of the Village. Ar*lr udin 12 f, uF fe The collapse. last year of.Lion Capitall, a government securities, dealer, cost -school districtsi-and other governmental units around the country millions of dollars. But the loss taught a valuable lesson that could well be heeded by those not involved. The lesson is that any governmental unit that has investable assets needs to have a written investment policy and due diligence procedures. Carefully written and implemented investment policies might have helped avoid the losses that occurred when Lion Capital went into bankruptcy. As reported elsewhere in this issue, school districts and other governmental units invested money -in repurchase agreements with Lion,Capital. Repurchase agreements, so-called "repos," are short-term loans backed, by government securities. However, Lion Capital was allegedly using the same government securities both as collateral for loans it had received from the custodial institution and- to -back the local govern ment's repurchase agreements. In effect,, there was no collateral backing the loans from the school districts. Investment policies specifying that loans could be made only to institutions meeting strict standards, such as those now being applied bythe Bethlehem, NX,school district, might well have .p,revete,d,lea ti,,s, to Lion, Capital,., Due dilip,,,11,ce procedures, requiring, for example, that the,, existence ofthe collateral bephysically checked by, a, trustee,, might still have pre,vented the pro e even if Lion Capiftal had, slipped ,t,,h,rough'the,firs,,t screening. The establishment of such, polici' iesand procedures now may smack of repairing the corral after* the horses are gone, but there will be more horses in the corral in the future. I Now lis, the filme for all government units investing, surplus cash — for however short aperiod, — to, revise or establish investment policies and due diligence procedures to safeguard those assets. .A- $19 Million THE W, .,rREET JOURNAL WEDNESDAY, MARC 19 8 1.5 I'loim� � M W06660, - ..... . ..... later, also called for the resignation, I Vf 1-1 _1 0 has r ��i 4 and la, T I haven't submitted resignations. In ESM Failure Ohio Legislature Expected To Raise New Fund Of $90 Million Today The city of Toledo, Ohio, said $19 mil- lion that it invested through E.S.M. Gov- ernment Securities Inc. is in jeopardy in the wake of E.S.M.'s collapse, and it sus- pended the city's finance director and trea- S!Ifrer, Meanwhile,'the Ohio legislature is ex- pected to pass today a bill establishing a new guarantee fund of $90 million to pro- tect about 70 state -chartered thrifts, follow- ing the closing of Cincinnati-based Home State Savings Bank. cause, It has, disco ver edit doesni have, the IM pf,� 10 MMMM SOffigh i i This story was prepared by Amal Nag in Detroit and Ralph E,, Winter and Clare A nsberry in Cleveland. collateral apparently promised by E.S.M. when the city loaned money to the Fort Lauderdale -based firm. "At this time, there's no indication that we have securities anywhere with our name on them," said Jack Stewart,, a spokesman for the city. He said the city was under the impression when it loaned the money that collateral had been set aside by E.S.M. C6nftvversy Over Securities The controversy in Toloo centers on shy the c: d',01' phy's c I . . ... Ab w ;ecuri es I QJYM d 7b7 -T—,,_ _u_ri ., as', apparent ly, require-, _ y oCaJ, aw. Tfi—emoney was transferred to, E.S.M0, ?arlier this year through Security Pacific Tearing & Service Corp. of New York. "The confirmation of the wired money -.ante from E.S.M.," said Mr. Stewart. 'We were told there were bills being held n our name." He said "it's being deter- nined" why the city didn't take physical ossession of the E.S.M. securities. It's also ,not clear how the Florida con - ,ern came to by selected as an investment ,ehicle by the city. City officials, including 4ayor Donna Owens, didn't return calls. 4r. Stewart, who said he has been deli,, - ated to answer reporters' questions, said ertain city officials "are right now in 'lorida investigAting" the case and that a lot of the details will come out iter. Without attributing the blame to any in- I ividual, the city manager, David Boston, londay suspended James Kasch, fi- ance director, and Daniel Hiskey, city measurer. Short-Terin Investments - Mr. Stewart, the spokesman for the city, said Toledo had been involved in short-term investments through E.S.M. for a year to 18 months. The $19 million in- vested was "iffle to money, earmarked as funds for the city's general activities budget., which totals about $100 million. A spokesman for Moody's Investors Service Inc. said the rating agency is look- ing into thevulnerability of'aflmunicippaili- ties involved in t° actions with E.S.M. "'Right now we are in the information - gathering period," said an official, who de- clined to say how the p9ssible $19, millfori loss might affect the rating for Toledo's ,general abligatlion bods, which 'have a sluri- gle-A rating. Other large potential losses from the E'. S.M. affair came to light yesterday. They include* —$20 million invested through E.S.M. by the city of Beaumont,, Texas. -4i1:.9 -mfflion and $7 million, respec- tively, by the cities of Pompano Beach and Tamarac, T11L —about $8 million Invemed by the Mem- phis, Tenn.,,, Board, of, Ed t�k ' mtion. —,$19 million by Talffta` 061, Fla. - based Sun Federal Savings! & Lou Asso- ciation. Beaumont Mayor William Neild con- ceded that probably only a "slight" portion of its $20 million will be recovered, but said the loss wouldn't threaten the ci ty"s solvency. A,Pomp Beach official,, said 1'we fee] Optimistic, about getting ( back,) the majority"" ofthe $11.9 million. A Mem- phis school board official noted the $8 mil- lion at risk there is only a small portion of the district's M million annual budget. Spokesmen for four more ins titutioAs iamed Mohday as in exposed to losses From the collapse confirmed their potential ,osses are $1, million or less. They include-., he city of Birmingham, Mich.; Da"auphin ,ounty, Pa. 4, First FecIRAW Savings & Loan Association of Big Spring, Texas; and ween City Savings & Loan Association of :11ainfield, N.J- Midland Commodities, Chicago, de - ,.lined to comment on its exposure. The 4ational Futures Association, the commod- ty Industry's self-regulatory agency, con- irmed, it, is looking Into Midland's involve- nent in the collapse. iew Guarantees Sought Ohio legislative leaders had expected resterday to pass a bill augmenting by $50 nillion the state's guarantee fund to pro- tect thrifts., but delayed long enough to hold public hearings. The bill expected to be passed today would be for a new $90 million fund, co m- phsed of a $50 Million state loan and $4,0 mi:llion, from assessmetits against state - chartered thrifts. Cincinnati -based Home State Savings would be specifically prohib- ited from drawing from the new fund, ac- cording to legislators drafting the bill. I The state -chartered thrift clQsed its doors last weekend after a run triggered I by the news that Home State had engaged in a large transaction with E.S.M. Home State pledged securities to E.S.M. in ex- change for a loan, but the face value of the securities exceeded the loan, leaving the thrift with a large loss if E.S.M. isn't able, to return the securities. State officials want to get Home State's offices reopened as soon as possible; de- positors often are unable to get their checks honored, and Social Security recipi- ents who arranged to have their checks de - .posited directly in the thrift can't withdraw their money. Some recipients have little cash for necessities. The Federal Reserve Bank of Cleveland said it Won't make April Social Security payments to Home State if the thrift hasn't reopened. Instead, the Fed will return ,-funds designated for that institution to the .!-.Social Security Administration. The Social Security,A-dministration said recipients may ask that Meir checks be mailed to their homes, or that the funds be forwarded to an account at another bank. If another institution takes ewer Home, State in the next two weeks, April Social Security payments, will be made to Home State. Finding a buyer for Home State is p°rov,M ing to be a diffictilt,tas,k, according to ONo banking sources. Slate officialssaid, negotv ations, continue 'with financ,,jal insiti st0 from Ohio and from out of state, but., there doesn't appear to be "one major Player at th i s t im e. V 4 Bankers who have looked at Home State say there are three major problems. First,. the thrift fares losses of as much, as S150 million related to E.S.M., . which dopsn't Wear likely to be able to return the secii- nties that Home State pledged. Second, like most thrift institutions nm%t- adays, many of Home State's assets aro valued at less on the market than on Home State's books. Mortgages made several years ago at interest rates of 8"7, to lorl, would sell far below face value at a time when the going rate on fixed-rate inort- gages is about 13%. bankers say. There are many other thrifts that Couldn't be liquidated suddenly for enough Money to repay depositors and other ob"Ij- gations, bankers say. The other thrifts can operate, however, because depositors don't all demand their money at once. The third problem is that Home State is insured by the state-run Ohio Deposit Guarantee Fund, instead of the Federal Sa'vings & Loan Insurance Corp. Federal authorities have had experience merging ailing thrifts, and they ha:e the resources to guarantee a buyer against losses. The Ohio fund, which totaled $136 million when Home State failed, might not be ade- quate. EVALUATING FINANCIAL INSTITUTIONS 225 PEACHTREE STREETP NoE* SUITE 1400 ,ATLANTAt GEORGIA 30043-690 (404) 1 A N i BY RHET 1 HA RELL TOUCFIE ROSS — ATLANTA I * RECOGNIZING THE PROBLEM A. BANKS ARE FACING INCREASING FINANCIAL DIFFICULTIES AND ARE FAILING IN RECORD NUMBERS, Be EACH YEAR THE NUMBER OF FAILED BANKS EXCEEDS THAT OF THE PREVIOUS YEAR (EXHIBIT A): 1979 10 BANKS THAT FAILED 1980 10 BANKS THAT FAILED 1981 IO BANKS THAT FAILED 1982 42 BANKS THAT FAILED 1983 1984 48 79 BANKS THAT FAILED 1985 (MAY) 35 BANKS BANKS THAT FAILED THAT FAILED Co EVEN MORE STARTLING I5 THE NUMBER OF BANKS 4N THE "PROBLEM LIST" AS COMPILED BY THE FDIC EXHIBIT B): 1981 220 BANKS ON THE LIST 1982 J69 BANKS ON THE LIST 1983 631 BANKS ON THE LIST 1981 800 BANKS ON THE LIST 1985 947 BANKS ON THE LIST D. CONSIDERING THERE ARE APPROXIMATELY 14,800 FEDERALLY INSURED BANKS9 THAT MEANS THAT 1 OUT OF 16 IS ON THE LIST. E. THE PROBLEM LIST IS CONFIDENTIAL AND IS BASED ON A COMPLEX RATING PROCESS. TO BE DISCUSSED LATER, II. WHAT DO BANKS FAIL? A. FAILURES ARE NOT ALLAYS CAUSED BY LONG—TERM FINANCIAL OR ECONOMIC FACTORS. Be ONE ACADEMIC STUDY REVEALED THE PRINCIPAL CAUSES TO BE: l• LOANS TO MANAGEMENT OR OWNERS 2. GENERAL MISMANAGEMENT OF LOANS OR EMBEZZLEMENTS J. OTHER MANIPULATIONS BY OWNERS 100 90 so 70 60 50 40 30 20 xo 0 EXHIBIT A 1979 1980 1981 1982 1983 Bank Failures 1979— 1985 1984 1985 (May) UNTITY 950 •0i wr 50 800 750 700 650 600 550 500 450 400 350 300 250 200 150 100 50 0 r �► 1982 1988 1984 1985 VILLAGE OF MOUNT PROSPECT PROPOSED INVESTMENT POLICY Sco e of Investment Poli a, This Investment Policy applies to the investment activities of all funds of the Village of Mount Prospect, except for the Policemen's Pension Fund and the Firemen's Pension Fund which are subject to the order of the 'Board of Trustees of each respective fund. All financial assets of other funds, including: the General Fund, Special Revenue Funds, Capital Project Funds, Debt Service Funds, Special Assessment Funds, Enterprise Funds, Internal Ser'vice Funds, Trust and Agency Funds, and other funds that may be created from time to time, shall be administered in accordance with the provisions of this Policy. Any monies received for the Policemen's Pension Fund, the Firemen's Pension Fund and the Mount Prospect Public Library Fund will be administered by the written order of the respective Board of Trustees of each fund. In the absence of such orders, monies received and/or securities held by the Village of Mount Prospect on behalf of these funds shall be administered in accordance with the provisions of this Policy. Objectives of Investment PoljSy The purpose of the Investment Policy of the Village of Mount Prospect is to establish cash management and investment guidelines for Village officials responsib.le for the stewardship of public funds. Specific objectives include: - Safety of principal is the foremost objective of the Investment Policy of the Village of Mount Prospect. Except for the pension funds, / for which short-term market fluctuations are tolerable, each investment transaction shall seek to first 2 ensure that capital losses are avoided, whether they be from securities defaults or erosion of market value. The Village shall diversify its investments to avoid incurring unreasonable risks regarding specific security types and/or individual financial institutions.,,, The Village's investment portfolio shall remain sufficiently liquid to enable the Village to meet all operating requirements which may be reasonably anticipated in any Village fund. . The investment portfolio of the Village, except for the pension funds, shall be designed with the objective of regularly exceeding the average return of three month U. S. Treasury Bills. The investment program shall seek to augment returns above this threshold, consistent with risk limitations identified 'herein and prudent investment principles. Assets of the pension funds shall be invested in securities which, over the term of an economic cycle, equal or exceed market -average rates of return for comparable portfolios or categories of assets. In managing its investment portfolio, Village officials shall avoid any transaction that might impair public confidence in the Government of the Village of Mount Prospect. Investments shall be made with judgement and care, under circumstances thenprevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for 3 investment, considering the probable safety of their capital as well as the probable income to be derived. Res tFor The Investment Pro ram y ... R.P9, Except for the Policemen's and Firemen's Pension Funds, management responsibility for the investment program of the Village of Mount Prospect is hereby delegated to the Director of Finance, who shall establish written procedures for the operation of the Investment Program consistent with this Policy. Such procedures shall include explicit delegation of authority to persons responsible for invest- ment transactions. No person may engage in an investment transaction except as provided under terms of this Policy and procedures established by the Director of Finance. The Director of Finance shall be responsible for all transactions undertaken, and shall establish a system of controls to regulate the activities of subordinate officials. The responsibility for investment activities of the Policemen's and Firemen's Pension Funds rests with the respective Board of Trustees of each fun. Cash Management, The Village's Policy regarding cash management is based upon the realization that there is a time -value to money. Temporarily idle cash may be invested for a period of one day to an excess of one year depending upon when the money is needed. Accordingly, the' Director of Finance shall cause to be prepared written cash management procedures which shall include, but not be limited to, the following: Receipts: All monies due the Village shall be collected as promptly as possible. Monies that are received shall be 4 deposited in an approved financial institution no later than the next business day after receipt by the Village. Amounts that remain uncollected after a reasonable length of time shall be subject to any available legal means of collection, Disbursements: Any disbursement due suppliers of goods and/or services or to employees for salaries and wages shall be con- tingent upon an available budget appropriation. Di sbursements shall be made subject to the following limitations: 1) payments from a petty cash fund may not exceed $50 and must be authorized by a Department Director; 2) payments for goods or services up to $500 must be authorized by the Finance Director; and 3) payments for goods or services over $500 must be authorized by the Village Manager, Finance Director and the Department Director. Such payments shall be supported by documentation as specified in written procedures referred to above* "I Cash Forecast,: At least annually, a cash forecast shall be prepared using expected revenue sources and items of expenditure to project cash requirements over the fiscal year of the Village. The forecast shall be updated from time to time to identify the probably investable balances that will be availableO Poo lin,g ..... of Cash: Except for cash in certain restricted and special accounts, the Village will pool the cash of various funds to maximize investment earnings. Investment income will be allocated to the various funds based upon their respective parti- cipation. 5 One of the objectives of the Village's cash management procedures is to comply with Illinois Revised Statutes, Chapter 102-34-1 which states: "When deposits of Village monies become collected funds and are not needed for immediate dis- bursement, they shall be invested within two working days at prevailing rates or better." Accountipl, The Village of Mount Prospect maintains its accounting records on the basis of funds and account groups, each of which is considered a separate accounting entity. All investment transactions shall be recorded in the various funds of the Village in accordance with generally accepted accounting principles as pro- mulgated by the Government Accounting Standards Board. Accounting treatment will include: 11, Investments will be carried at cost or amortized cost which approximates market. � Premium or discount will be amortized over the life of the investment. Im Gains or losses of investments in all fu'nds except the pension funds will be recognized at the time of disposition of the security. � Gains or losses on the exchange of fixed-income securities in the pension funds will use -the deferral and amortization method of accounting. Gains or losses on the disposition of fixed- income securities other than exchanges will use the completed I transaction method of accounting. 6 Financial Institutions It shall be the policy of the Village of Mount Prospect to select financial institutions on the following basis: Security: The Village will not maintain funds in any financial institution that is not a member of the FDIC or the FSLIC systems. Furthermore, the Village of Mount Prospect will not maintain funds in any financial institution not willing or capable of posting .required collateral for funds in excess of the FDIC or FSLIC insurable limits. Size: The Village of Mount Prospect will not select, as depository, any financial institution in which the Village funds on deposit will exceed 50% of the institutions capital stock and surplus,, -00 Location: The Village of Mount Prospect will maintain operating 14 and investment accounts in the financial institutions within the Village of Mount Prospect whenever possible, and not precluded by other standards of this Policy. However, the Village may approve qualified depositories regardless of location, Statement of Condition: The Village of Mount Prospect will main - to for public and managerial inspection current statements of condition for each financial institution named as depository. If, for any reason the information furnished is considered by the Finance Director or the Village Treasurer to be insufficient,,, the Village may request additional data. The refusal of any institution 7 to provide such data upon request may serve as sufficient cause for the withdrawal of Village funds. Services and Fe,es: Any financial institution selected by the Village of Mount Prospect shall provide normal banking services, including, but not limited to: checking accounts, wire transfers., purchase and sale of investment securities and safekeeping services. Fees for banking services shall be mutually agreed to by an authorized representative of the depository bank and the Finance Director of the Village on an annual basis. Fees for services shall be substantiated by a monthly account analysis and shall be reimbursed by means of compensating balance. Investment Selection The Village of Mount Prospect may invest in any type of security allowed by law as set out in Illinois Revised Statutes, chapter 85-902-2. A summary of allowable securities follows: Bonds, notes, certificates of indebtedness, treasury bills, or other securities, which are guaranteed by the full faith and credit of the United States of America. � Interest-bearing savings accounts, interest-bearing certificates of deposit or interest-bearing time deposits constituting direct obligations of any bank as defined by the Illinois Banking Act and only those insured by the Federal Deposit Insurance Corporation (FDIC). 8 Short-term discount obligations of the Federal National Mortgage Association or in shares or other forms of security legally issuable by savings and loan associations incorporated under the laws of the State of Illinois or any other state or under the laws of the United States and only in those savings and loan associations insured by Federal Savings and Loan Insurance Corporation (FSLIC). Short-term obligations of corporations (commercial paper) organized in the United States with assets exceeding $500,000,000 if (a) such obligations are rated at the time of purchase with the highest classification established by at least one standard rating service and which mature not later than 180 days from the date ofpurchase, W and no more than 25% of any fund is invested in such obligations at any time and (c) such purchases do not exceed 10% of the corp o. ration's outstanding obligations. � Illinois Public Treasurer's Investment Pool The Village will specifically avoid any purchase of financial forwards or futures, any leveraged investments,, lending securities or reverse repurchase agreements. Repurchase agreements will only be purchased if specific securities are under the I control of the Village of Mount Prospect. All Investments except the Illinois Public Treasurer's Investment Pool shall be selected on the basis of competitive bids. Financial institutions located within the Village of Mount Prospect will be awarded the bid if the local bid is within 1/8 of 1% of the best bid and the local bid will not result in a dollar loss to the Village of more than $500 on an annualized basis. 9 Diversification and Maturities In order to reduce the risk of default, the investment portfolio of the Village shall not exceed the following diversification limits: 4 � No financial institution shall hold more than 20% of the Village of Mount Prospect's investment portfolio, exclusive of U. S. Treasury securities held in safekeeping. � Commercial paper shall not exceed 10% of the Village's investment portfolio, Illinois Public Treasurer's Investment Pool shall not exceed 25% of the investment portfolio. Maturities of investments of the various funds of the Village shall be determined to enable the Village to have available sufficient cash for all operating purposes. Investment maturities in the General Fund and Special Revenue Funds shall be limited to a maximum maturity of fifteen months from the date of purchase. Invest- ments in other funds may be purchased with maturities to match future project or liability requirements. However, any investment purchased with a maturity longer than two years must be supported by written documentation explaining the reason for the purchase and must be specifically pre -authorized by the Finance Director. Notwithstanding the provisions of the above paragraph, no investment in any fund shall have a maturity date greater than the period allowed by Illinois Revised Statutes, by Village Ordinance or by other standards of this policy. 10 Collateral It is the policy of the Village of Mount Prospect to require that funds on deposit in excess of FDIC or FSLIC limits be secured by some form of collateral. The Village will accept any of the following assets as collateral: I U. S. Government Securities Obligations of Federal Agencies Obligations of Federal Instrumentalities Obligations of the State of Illinois Obligations of the Village of Mount Prospect General Obligation Municipal Bonds rated "A" or better Any other collateral identified in Illinois Revised Statutes as acceptable for use by the Treasurer of the State of Illinois The amount of collateral provided will be not less than 110% of the fair market value of the net amount of public funds secured. The ratio of fair market value 0`11 of,col lateral to the amount of funds secured will be reviewed quarterly and additional collateral will be requested when the ratio declines below the level required, Pledged collateral will be held by the Village of Mount Prospect or in safekeeping and evidenced by a safekeeping agreement. If collateral is held in safekeeping, it may be held by a third party or by an escrow agent of the pledging institution. Collateral agreements will preclude the release of the Pledged assets without an authorized signature from the Village of Mount Prospect, but they will allow for an exchange of collateral of like value. Internal Controls The Director of Finance shall establish a system of internal controls, which shall be documented in writing. The internal controls shall be reviewed by an independent certified public accountant in conjunction with the annual examination of the financial statements of the Village. The controls shall be designed to prevent losses of public funds arising from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officers of the Village of Mount Prospect. One of the required elements of the system of internal controls shall be the timely reconciliation of all Village bank accounts. Bank reconciliations shall be performed on a monthly basis and shall be completed no later than thirty (30) days after the end of the monthly cycle. Reportina The Director of Finance shall submit a monthly investment report that provides the following information: Principal and type of investments by Fund Earnings for the Current Month and Year to Date Annualized Yield � Ratio of Cash to Investments -� Weighted -average life The Annual Financial Report of the Village of Mount Prospect shall include a list of all investment -s by fund and the interest rate of each investment. Additionally, a summary report of cash and investments maintained in each financial institution will be included. From time to time the Director of Finance shall suggest policies and improve - 0 ments that might be� made in the investment program, 12 Indemnification The standard of prudence to be used by investment officials of the Village of Mount Prospect shall be the "prudent person" standard which states: Investments shall be made with judgement and care, under circumstances then prevailing, which persons of prudence,, 4F discretion and intelligence, exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the possible income to be derived. The above standard is established as the standard for professional responsibi. lity and shall be applied in the context of, managing the Village's overall portfolio. Investment Officers of the Village of Mount Prospect acting in accordance with this Investment Policy and written procedures as may be established and exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided that deviations from expectation are reported in a timely fashion, and appropriate action is taken to control adverse developments. Amendment This Policy shall be reviewed from time to time and any changes shall be presented to the Board of Trustees for their approval, 0 Adoption Adopted by the Village Board by Resolution July 2. 1985, Village 6 Ant Prospect Mount Prospect, Illinois INTEROFFICE MEMORAN.DUM TO: Terrance L. Burghard, Village Manager FROM: David C. Jepson, Finance Director DATE: June 20, 1.985 SUBJECT: Flexible Compensation Plan Document During our review of the Village's medical benefit, program,,, one of the options that Mike Janonis and I looked at was a flexible b,enefit, or cafeteria plan, Under a cafeteria plan, an employee can choo,se, from a varlety of benefi H�a June 13, 1985 Mr. David C. Jepson Director of Management Services Village of Mount Propect 112 East Northwest Highway Mount Prospect, Illinois 60056 Dear Dave Flexible Compensation Plan Document Enclosed you will find a draft of the plan document for the village of Mount Prospect Flexible Compensation. Plan. This plan is designed simply to allow employees of the Village to pay their premiums for coverage under the Village's medical plan on a pretax basis. This draft has been prepared in accordance with the rules established by the proposed regulations under Section 125 of the Internal Revenue Code, as well as the changes rendered to Section 125 by the Deficit Reduction Act of 1984. Dave, this document establishes the base for the Village's flexible compensation program. It has been written so that it can be easily modified to add other benefits, such as a medical or dependent care spending account. Please have your legal counsel review the draft before it is implemented. Once the plan has been adopted, please send us a copy of the resolution adopting the plan for our records. If you have any questions, please give us a call. b Very truly yours, A. S. HANSEN, INC. LRD : imp6l3Z Enclosure Mi A. S. Hansen, Inc. * 1417 Lake Cook Toad • Deerfield, Illinois 60015 • 312-948-7400 Initial Draft Prepared by A. S. Hansen, Inc. M • Review by • Counsel VILLAGE -OF MOUNT PROSPE C.T FLEXIBLE COMPENSATION PLAN Effective: July 1, 1985 VILLAGE OF MOUNT PROSPECT FLEXIBLE COMPENSATION PLAN Table of Contents PREAMBLE ARTICLE I Purpose 1.1 - Purpose 1.2 - Legal Status 1.3 - Definitions 1.4 - Construction ARTICLE II Eligibility for Participation 2.1 Eligibility ARTICLE III Salary Conversion for Participants 3.1 - Flexible Dollars 3.2 - Salary Conversion ARTICLE IV Spending Flexible Dollars 4.1 - Benefit Areas Where Flexible Dollars Can Be Applied 4.2 - Medical Plan 4.3 - How Flexible Dollars Are Maintained Hereunder 4.4 - Internal Revenue Service Approval 4.5 - Termination of Participation ARTICLE V Administration 5.1 - Plan Administrator 5.2 - Powers and Duties of the Plan Administrator 5.3 - Medical Plan 5.4 - Availability of Plan Details 5.5 - Participant's Statements 5.6 - Rules and Decisions 5.7 - Plan Administrator Procedure 5.8 - Indemnification of the Plan Administrator 5.8 - Committee Page No I I M 5 4 VA PREAMBLE The purpose of this document is to set forth the flexible compensationplan of the Village of Mount Prospect. InitialIv, for the first n1an vp=v t-iixn "inv% will cover the employees' premiums for the Medical Plan of the Employer, At the election of the Employer, the plan may be expanded to include reimbursement accounts and other choice—making opportunities. 0581L/6/85 ARTICLE I Purpose and Definitions NW1 1.1 Turpose: The purpose of this legal instrument is to set forth the flexible compensation plan of the Village of Mount Prospect ("Employer") hereinafter called the "Plan". This Plan is effective on July 1, 1985, and is applicable to all the Employees, as defined herein, of the Employer. This Plan does not apply to any Employee who was terminated prior to July 1, 1985, unless such Employee becomes reemployed by the Employer on or after such date. Employees of the Employer who are eligible to participate in the Medical Plan and who are on the Employer's payroll as of July 1, 1985, are eligible, as defined herein, for the benefits of this Plan. Employees hired on or after July 1, 1985, may become eligible for benefits under this Plan as described in Section 2.11, 1.2 LealStatus: This Plan is a "cafeteria plan" under Section 125 of the Code. The Plan will be "nondiscriminatory" as such term is used in Section 125 of the Code and the Employer will'take whatever steps are necessary to maintain the Plan as "nondiscriminatory" under said Section 125. The steps the Empl.oyer will take may include, but are not limited to, a change in the method of determining the Participant's salary conversion created by the Plan and/or the method of allocating the elected benefits to individual I Participants. In addition, this Plan shall operate in such a manner that the .j "statutory nontaxable benefits" (as def ined in Section 125(f) of the Code) provided hereunder to "key employees" (as defined in Section 416(i)(1) of the Code) shall not exceed 25 percent of the aggregate of such benefits provided to all Participants under the Plans 0581L/6/85 2 ARTICLE II Eli ib-litfor Participation 2.1 Eligibility: An individual who is an Employee of the Employer, who is on the Employer's payroll and who is eligible to participate in the Medical Plan of the Employer on the Effective Date will become a Participant on the Effective Date. An individual who is an Employee of the Employer who does not become a Participant on the Effective Date, or who becomes an Employee after the Effective Date will become a Participant on the January 1 next following the date such Employee becomes eligible to participate in the Medical Plan of the Employer. If a Participant no longer meets the requirements for eligibility in the Medical Plan of the Employer for any reason but is still work -Ing for the Employer, then all salary conversion shall cease as of such date. 0581L/6/85 4 ARTICLE IV end in Flexible Dollars 4.1 Benefit Areas Where Flexible Dollars Can Be Ap2lied: In general, Flexible Dollars can be used to provide benefits in accordance with Section 4.2 hereof. 4.2 Medical Plan: Each Participant who has so elected may use Flexible Dollars created for such purpose to pay for all (or part) of the Participant's coverage premiums falling due on or after the Effective Date under the Medical Plan maintained by the Employer for its Employees. A Participant who elects medical coverage for a Plan Year shall be deemed to have elected the same coverage for the next subsequent Plan Year, unless such Participant specifically elects different coverage (or no coverage) before the start of such next subsequent Plan Year. 4.3 How Flexible Dollars Are Maintained Hereunder: No actual funds or assets shall be maintained under this Plan. A record of a Participant's Flexible Dollar credits and expenditures shall be maintained by the Plan Administrator. 4*4 Internal Revenue Service Agproval,: The use of an opt -ion, if any2 under this Plan may, at IF the discretion of the Committee, be contingent upon approval of the Internal Revenue Service, 114.5 Termination of Particleation.* In the event a Participant no longer satisfies the eligibility requirements of this Plan for any reason (termination of service, death, disability, retirement, layoff, unpaid leave of absence, transfer to part-time status), any Flexible Dollar amounts which have been elected but have not yet accrued under this Plan for the current year will not be payable to (or on behalf of) such Participant or his beneficiary. The Participant's salary conversion hereunder shall terminate as of the date such 11 Participant becomes ineligible to participate in this Plan. 0581L/6/85 6 (f) to receive, review and keep on file (as it deems necessary) reports of benefit payments by the Employer and reports of disburse— ments for expenses; (g) to exercise such authority and responsibility as it deems appropriate in order to comply with the terms of the Plan relating to the records of the Participants and the balances which are payable under this Plan; and W to appoint individuals to assist in the administration of the Plan and any other agents it deems advisable, including legal and actuarial counsel. In exercising these powers and duties, the Plan Administrator may rely upon any direction, information or action of another Employee of the Employer as being proper under this Plan and is not required under this Plan to inquire into the propriety of any such direction, ."information or action* It is intended under this Plan that the Plan Administrator shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under this Plan and shall not be responsible for any act or failure to act of another Employee of the Employer. Neither the Plan Administrator nor the Employer makes any guarantee to any Employee in any manner for any loss or other event because of the Employee's participation in this Plans The Plan Administrator shall have no power to add to, subtract from or modify any of the terms of the Plan, or to change or add to any benefits *ded by the Plan, or to waive or fail to apply any requirements of provi eligibility for a benefit under the Plan. 4 5.3 Medical Plan: Administration of, and payment of claims arising under the Medical Plan of the Employer shall be in -accordance with the procedures set forth in such Medical Plan, and the provisions of this Plan shall not M� 5.4 Availabilit,yof Plan Details: The Plan Administrator has made and shall continue to make available descriptive materials to Participants 0581L/6/85 8 ARTICLE VI Miscellaneous 6,1 Nonguarantee of.'Ern ployment: Nothing contained in this Plan shall be construed as a contract of employment between the Employer and any Employee, or as a right of any Employee to be continued in the employment of the Employer, or as a limitation of the right of the Employer to discharge any of its Employees, with or without cause. 6,2 RIFInts, toEmploer's Assets: No Employee or beneficiary shall have y MI. any right to,, or interest in, any assets of the Employer upon termination of employment or otherwise, except as provided from time to time under this Plan, and then only to the extent of the benefits payable under the Plan to such Employee or beneficiary. All payments of benefits as provided for in this Plan shall be made solely out of the assets of the Employer and the Plan Administrator shall not be liable therefor in any manner. 01 61*3 Nonalien,ation, �lof Benefits: Benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of 4 any kind, either voluntary or involuntary, including any such liability which is for alimony or other payments for the support of a spouse or former spouse, or for any other relative of the Employee, prior to actually being received by the person entitled to the benefit under the terms of the Plan; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder, shall be void. The Employer shall not in any manner be liable for, or subject to, the debts, contracts, liabilities., engagements or torts of any person entitled to benefits hereunder. 0581L/6/85 10 2-1 Amendments.: The Employer reserves the right to make from time to time any amendment or amendments to this Plan, including, but not by way of limitation, any amendment it determines necessary or desirable, with or without retroactive effect, to comply with Federal, State or local law, 7.2 Action by Employer,0 Any action by the Employer under this Plan may be by resolution of its Board, or by any person or persons duly authorized by resolution of said Board to take such action. "K 1P IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the foregoing instrument comprising the Village -of Mount Prospect Flexible Compensation Plan, VILLAGE OF MOUNT PROSPECT has caused its corporate seal to be affixed hereto and these presents to be duly executed in its name and behalf by its proper officers thereunto authorized this day of 19859 ATTEST: 96 Authorized Officer - Secretary (VILLAGE SEAL) 05 81 L / 6 / 85 14