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Plan A Investment Performance

NEPC recently reported to the Board of Trustees the investment results from CBERA’s Plan A investment funds.

For the year ending June 30, 2017 the absolute returns for all core funds were positive. The highest return was earned by the TRP Blue Chip Growth Fund at 27.9%. Blue Chip (6th percentile), also achieved the highest relative ranking among comparable funds. All core investment funds, with exception of the TRP Spectrum Income Fund (54th percentile) performed at or above the median fund in their respective universes for the ten years ended on June 30, with TRP Blue Chip Growth Fund earning a top 9th percentile rank and Templeton’s International Equity Series earning a top 18th percentile rank. Although not available prior to 2015, the T. Rowe Price Mid-Cap Growth continues its historically strong relative performance (top 2th percentile over 10 years).

Within the Plan’s target date fund line-up, all Retirement Funds from Retirement 2015 to Retirement 2060 earned returns in excess of 10% over the past year. The highest performers were the 2040, 2045, 2050, 2055 and 2060 Funds whose returns exceeded 18%. For longer term periods of five and ten years, Retirement 2010 to Retirement 2055 Funds all place in the top decile of funds in their comparable Morningstar universe. The Retirement 2015, Retirement 2020, Retirement 2025 and Retirement 2055 Funds all place in the top percentile ranking for the ten-year period. Retirement 2010, Retirement 2030, Retirement 2035, Retirement 2040, Retirement 2045, and Retirement 2050 Funds are in the top 5th percentile for the same ten-year period.

For the quarter ending June 30, asset weighted return for the Plan was 3.6%. For the past year, the return was 14.7%. These returns reflect the quality of the funds offered within Plan A as well as individual participant investment elections.

NEPC Recently reported to the Board of Trustees the investment results from the CBERA Group Trust portfolio:

CBERA Group Trust Investment Performance

Periods Ending June 30, 2017

Period

Gross Investment Return* Corporate Funds Universe Ranking

One Year

10.2% 4

Three Years

6.6% 12

Five Years

9.0% 34

Ten Years

8.7% 2

*All periods greater than one year are annualized

2017 Pre-Retirement Seminar

Fifty-nine participants and thirteen spouses attended the 2017 seminar.

The Changing Lifestyle in Retirement - Roberta Taylor
Roberta engaged our participants to think ahead and imagine what a successful retirement means to each of them. She spoke about the importance of communication, life balance and expectations. According to an attendee, she “made me think about what I (we) will be doing daily and what we will need to do. I haven’t thought about that before.” Another wrote, “good questions to ask yourself and your family.” A participant wrote that is was “great food for thought” and that the structure was very “eye opening but necessary.” Another attendee commented that it was a “great way to start the program. Roberta really made you think about so many different aspects to retirement. Most importantly, she reminded us to LIVE our lives.” Many appreciated the many handouts that she provided. One participant noted, “great handouts, gave me a lot to think about; lots of questions to think about what I should be doing to be prepared for retirement.” At the end of the session, Roberta showed an inspiring video of a 96 year old women that tried out for America’s Got Talent and wowed the audience. It is a reminder that almost anything is possible if you have your health.

Social Security – Sabrina Feliciano
Sabrina returned for a second year to speak to our members regarding the workings of the Social Security system. Many noted that they found her informative and helpful. It was observed, that Sabrina “gave me a better understanding of the Social Security system.” Another wrote, that “this was informative. I had some knowledge but there were some learning points.” She urged participants to go the Social Security’s user-friendly website, gather information, and apply on-line for benefits. A few wrote that her presentation needed to be slowed down. A participant stated, “that is was good information but she spoke too quickly.” Reminding participants if they go to a Social Security office, they will be waiting for hours! A participant wrote that the “website I was given by you is a very good tool that I am going to use to understand better.”

The Health Care System – Carl Abramson
Carl Abramson, a participant of CBERA and a retiree, spoke about the complexities of the healthcare system. He was able to share his personal experience about the fundamentals of choosing the right healthcare plan. He stressed to ask questions because everyone will have different needs: which doctors, what prescriptions, and where one chooses to live all play an important role in the healthcare decision making process. Carl received high marks for his presentation. One audience member stated that “Carl gave detailed information that was extremely valuable.” It was remarked that “I got the most of this session. I knew very little and learned a lot.” Now to keep it straight in my brain.” In addition, a participant wrote, it was a “well prepared presentation – I have a lot of homework to do to better understand this – especially the options.” The handouts were appreciated. It was stated that the session was “informative. Very complicated and good resource material.” On a final note, an attendee stated that is was “great to hear from a fellow banker with hands on experience.”

CBERA Retirement Plan Options - Frank Maloney
Frank breaks this segment into two parts: investment perspective, and 401(k) and pension benefits. During the investment perspective portion, he uses historical data to provide a better understanding of market fluctuations and to stress the importance of staying invested. During the 401(k) and benefit section, he discusses the uncertainty of future expenses from the basic cost of food, shopping, periodic home repairs, to costs like health care expenses. One of his main points is to approach managing uncertainty is with flexibility. In addition, he explained how Plan A and Plan C can work together and what benefit options are available when a participant retires. As always, Frank received high praise from attendees. It was noted that Frank was “excellent, thorough and easy to understand.” Another wrote that the “presentation was excellent and educational.” A participant imparted that “a lot of information to absorb. Very knowledgeable of all options. Good presentation.”

Taxes & Taxable Distributions - Frank Maloney
During this section, Frank takes the time to consider the tax implications for lump sums, installment distributions and pensions. Also, he examines the relationship between receiving Social Security benefits and working. A participant wrote that Frank “gives a lot of information to think about. Frank is a great speaker. Patient, friendly, great personality and very informative.” Another stated he was “straightforward.”

Estate Planning – Brian Liberis
Brian received positive feedback from our participants. The main goals of estate planning is to ensure that one’s wishes are carried, to protect property, reduce taxes and reduce work for others in the future. Brian related critical tools that can be used to make sure that financial matters are prevented and resolved as intended. In addition, he spent an extensive amount of time discussing Estate Tax Savings with Trusts. One wrote, “excellent – will be covering my estate planning more efficiently based on Brian’s presentation.” Another attendee stated that it “made me realize I need to get my affairs in order.” Another commented that “Brian was a very good speaker! He was easy to understand, held my attention.”

Retirement Discussion - Terry Penta
During the two-day seminar, members were inundated with information that will, in the end, help them have a fulfilling retirement. The CBERA Hangman game allows us to highlight the important points while having fun. Participants are given a chance to win prizes. Someone wrote that it was an “awesome way to end the seminar.” Another commented that is was a “a great idea to learn by fun.” A participant wrote that “Terry is fun, great sense of humor- informative and helpful.”

2016 & 2017 Qualified Plan Limits

IRS Contribution Limits for 401(k) Plans (Plan A)
and Annual Benefit Limitations for Pension Plans (Plan C)

2017 2016

Maximum 401(k) Employee Pre-Tax and Roth 401(k)
Contributions Combined (per year) - PLAN A

$18,000 $18,000

Maximum 414(v) Pre-Tax “Catch-Up” Deferrals

$6,000 $6,000

Maximum 401(k) Employee Pre-Tax, (excluding “Catch-Up”)
Roth 401(k), After - Tax and Bank Matching Contributions
Combined (per year) - PLAN A

$54,000 $53,000

Maximum Annual Pension Plan Benefit -
PLAN C, Adams & IFS Pension Plans

$215,000 $210,000

Maximum Annual Compensation - ALL PLANS

$270,000 $265,000

Highly Compensated Employee (HCE) - ALL PLANS

$120,000 $120,000

Please note: an eligible Plan A participant can continue to elect to make Pre-tax (elective), Roth and/or After-tax
non Roth) contributions up to a total of 75% of their compensation.
A participant can elect to not contribute to Plan A.

Highlights from Annual Meeting

April 26, 2017

2017 is a special year for the Staff of CBERA. This year each member of Staff will complete a significant service milestone. Jennifer and Mary Sue will reach ten years of service; Kevin and Terry will have worked 20 years for the Association; and finally, Wah and I will celebrate our 30 year anniversaries.

Much has changed since the first day I walked into 50 Federal Street in Boston. The number of banks, the number of participants, assets under CBERA’s oversight (only $83 Million at the end of 1987), qualified plan designs (no 401k Plan; no Plan C as a separate Plan), the diversity of assets in our plans (Plan C only had 30 Year Treasury Bonds), quarterly Plan A valuations done by the First National Bank of Boston, and most significantly, the technology. However, the one thing that has not changed is the type of people who are our participants. The quality of individuals who work in community banks remains as high as ever. Their thoughts about what the future may hold, and the goal of being able to afford to retire concerns many of them. Helping them by facilitating and preparing them for that day of retirement has always been CBERA’s focus. Although it has only been our catchphrase for the last few years, Building Successful Retirements was and will always be our daily motivating ideal.

This morning, I would like to talk about a special group of participants: those employees who have worked throughout the years, reached retirement, and are now drawing a pension. Who are these individuals who trust CBERA enough to continue to deliver a payment every month for the rest of their lives? Some statistics about the group: our oldest retiree, living in Florida, is 101, turning a 102 in October. She retired in 1977 from the Bank after 42 years of service. The first thing she did after retiring was to get married for the first time.

By the end of this year, we will hopefully have 3 more centenarians, and 51 pensioners who will be over age 90. An interesting note, 39 individuals have been receiving pensions for more than 30 years.

The number of individuals collecting monthly payments continues to grow: as of January 1, 2012, (5 years ago) 575 participants were receiving pensions; as of April 1, 2017, 807 are now collecting, a 40% increase in the number of pensioners in that time. Monthly pension payments now top $1Million. Included in our current pensioners is a woman who retired this year at age 84 and after 65 years at the Bank.

Terry has the challenge, the pleasure, and sadness of working with our pensioners. Many times, they call to update addresses, change direct deposit, adjust tax withholdings, or simply chat. The sadness comes from hearing about a death of a pensioner or spouse.

The increase in pensioners, even in the volatile banking environment of mergers and acquisitions, and financial stress in the industry, shows that participants believe in, and trust their relationship with CBERA. We do not simply perform retirement transactions. We help people make better financial choices that will enhance their financial security in retirement.

As I often mention, the most important event we sponsor each year is our Pre-Retirement Seminar. This year will be the 29th edition of the seminar. With the 66 people who attended last year, it is conservative to say that over 1500 participants and spouses have been guided and helped by this seminar. Also, for me the most fun and challenging, I have sat down with many participants and spouses, including over the past year, 21 individuals contemplating retirement. I am always willing to meet with prospective retirees.

Included in my most recent meetings are three of our longest standing participants who, on average, have 45 years of service. I must be getting older, because I have known each of them since they were in their thirties.

The individuals receiving pensions are very important to me and CBERA. We need to fulfill the trust that each retiree has in CBERA. We have the responsibility to manage and invest funds so that there will always be enough for each of them to be paid for the rest of their lives even as the Massachusetts banking industry changes. It is CBERA’s and my most important challenge. Interest rates, mortality tables, investment returns – always changing. Managing all those risks is complicated. It is why CBERA has Trustees who bring their best business judgement to every meeting, a professional and experienced Staff, exceptional advisors like NEPC (our asset consultant - who has helped us achieve consistent top decile investment performance by bringing us the thoughtful asset allocation ideas and excellent investment managers), and P-Solve (actuaries - who facilitates our understanding of the funding risks, of today and of the future). My/CBERA’s goal is that none of the 800 pensioners will ever have to worry about their monthly pension.

2016 was a strong year for Plan A. Total invested assets in the Plan at year end were $449 Million compared to $411 Million a year earlier.

Investment returns for 2016 rebounded nicely from 2015. As calculated by NEPC, the 2016 asset weighted investment return was 8.4% compared to 1.9% in 2015. Average balances increased by 5.9% to $101,117. The average participant balance has more than doubled since the quarter end low point of $49,484 at the end of March 2009 (approximately the bottom of the market during the financial crisis). Plan A’s average participant balance compares very favorably to TRP’s average participant balance of $82,819. Median participant balance increased significantly from $29,600 to $35,100 or 19%. It is important that all participants, not only the long service, higher paid, benefit from the Plan.

The best performing core fund during the year was DFA’s US Small Cap Portfolio. Small Cap earned 23.5% placing it in the top third of US small blend funds as tracked by Morningstar for 2016 and a top 12% ranking over the past five years. This performance reflects that US small cap funds performed better than large cap funds in 2016.

Also, having a strong year was the TRP’s Equity Income Fund. After struggling for the last few years, the Fund earned a 19.3% return placing it in the top 12% of US Large Value funds in 2016, moving its ten-year performance above median. TRP’s Blue Chip Growth and Mid-Cap Growth streaks of excellent performance changed in 2016. Blue Chip’s performance was below median and Mid-Cap dropped to the second quartile. Their long-term numbers however remain exceptional. Blue Chip has a top 7% ranking over the past five years; Mid-Cap a top 6% ranking over the same period. Templeton’s International Equity Fund, our longest standing fund, continues to struggle as its return of 1.3% placed it in the 60% of foreign Value Funds. It performed better in the fourth quarter and its ten-year rank places it in the top 13% of similarly styled funds. Spectrum Income Fund, the fixed income option with Plan A, continued is solid and consistent performance. Through all tracking periods from 1 to 10 years, its performance is above the median for multisector bond funds.

For 2016, the Retirement Dates funds’ returns ranged from 6.5% for the Retirement Balanced Fund to 7.7% for the Retirement 2030, 2045, 2050 and 2055 Funds. The relative performance of these target date funds, which received 61% of new contributions in 2016, is beyond peer. As tracked by NEPC using Morningstar’s rankings, all Retirement Funds from 2010 to 2055 place in the top 1% of target date funds over the last ten years. The Retirement 2005 Fund is in the top 3% over the ten-year time frame and the Retirement Balanced Fund – formerly the Retirement Income Fund, has a top third 10-year ranking.

The performance of the Retirement Date Funds is critical to Plan A’s long term success of building sufficient retirement assets for participants. These funds are the default investment fund for the Plan: the “easiest to use” investment option for most participants in building toward a successful retirement. The percentage of total assets in the target date funds was 44% at year end, a 2% increase from 2015.

The largest Fund within Plan A remains the Stable Value Fund with 15.8% of total assets, down 1% from a year earlier. Almost two thirds of this Fund’s $71M in assets is attributed to participants over age 60. Although this allocation may be appropriate for many in this age group, the $5M for participants under age 50 raises concerns. During 2016, the Fund earned 1.9%. This underperformed all but the Templeton International Fund in 2016. Most importantly, over the past five years, its return ranks last among Plan A’s investment options, by at least 2.5% annually. The expected return of this Fund in our current low interest environment, will not allow those younger participants to accumulate sufficient assets to retire to a reasonable standard of living, especially as the importance of pension plans wains. Staff and TRP will continue to explore different communication approaches and plan design alternatives to help participants improve asset allocation to give them a better opportunity to have more “choices” at retirement.

There are a few other statistics from Plan A of note. The average pre-tax contribution rate at year end was 9.5%, increasing from 9.1% at the beginning of 2016. 63% of participants are only contributing to one retirement date fund. Annual auto contribution increase continues to work with very little participant negative feedback. On the higher end of contributions elections, 136 participants are now contributing 20% or more of their pay to the Plan, including 3 at 75%. 147 participants are making Roth contributions.

The number of plan loans outstanding remains high which is concerning: there are more loans, there are more participants with loans, their average balance is higher compared to a year ago. The only positive loan statistic is the % of participants with loans (22.7%) is less than both the TRP and Industry averages. Research consistently has shown that 401k loans adversely impact account balance growth. Our average loan rate among outstanding loans is 3.93%. 18 of the 21 available investment funds had returns in excess of that number in 2016. Over the past five years, only the Stable Value did not a provide a return above the average loan rate. Loans should be used only when no other assets are available and for an asset that is as important to you as your retirement.

The 2016 gross investment return for CBERA’s Group Trust, the investment vehicle for Plan C and the IFS and Adams Defined Benefit Plans, as reported by NEPC was 11.6%. Key contributors to this top percentile performance within NEPC’s database were: QS Investors, our domestic small cap manager, at 20.7%, Black Rock’s Dual Beta Strategy, a mixture of S&P 500 and Long Treasuries, at 18.6%, Mondrian, the emerging market debt manager, at 14.2%; and PanAgora’s Risk Parity product, a balanced portfolio of stocks, bonds and commodities, at 15.0%. Our newest manager, Acadian Asset Management, our small cap emerging markets manager, contributed as well, with a 7.2% return over 8 months. Many of the diversifying investment allocations that hurt performance in 2015 when the portfolio lost 4.2%, rebounded in 2016.

Longer term, Group Trust investment performance numbers remain very favorable. The 3-year gross return of 7.1%, places the portfolio in the top 6% of funds tracked by NEPC, and the 10-year gross number of 8.3% earns a top 3% ranking. The three-year annual return number is 220 basis points annually above the median fund; the ten-year number is 290 basis points above the median fund. Most importantly for managing bank plan contribution costs, these returns exceed the assumed actuarial return during these different time frames. The portfolio also has outperformed passive index comparisons. This means the execution by CBERA’s investment managers of the Group Trust’s investment policy added value and security to the Trust, and the Trust’s ability to deliver to each participant, today and tomorrow, his/her pension benefits.

Plan C invested assets were approximately $290M at the end of the year. Combined with Plan A and the pension plans of Institution for Savings in Newburyport and Adams Community Bank, CBERA was responsible for almost $771M in assets at year end, a 10% increase from 2015.

The actuaries at P-Solve are now working on the results for the 2017 valuation. Interest rates have been exceptionally volatile over the last several months. Rates were low for most of 2016, but began to rise in the Fall, especially after the election. Early this year, they were flat or slightly higher. However, the last couple of weeks rates have dropped again. With the strong investment return from 2016, my expectation is that value of assets compared to liabilities based on long term rates will result in improved funded status. This improvement should show up on the participant Annual Funding Notice that will be distributed next April. It should also positively impact the amount of contributions required by CBERA’s long range funding policy. However, the valuing of liabilities that are based on more current rates (lump sum, PBGC and withdrawal) are likely higher, potentially offsetting the above assumed investment gains of 2016. The actuaries will report to the Board in May with individual letter follow-ups to the banks in June.

The ups and down of rates and investment returns highlight the significant challenge each year that Board of Trustees face when listening to the actuaries and investment consultants. How to weigh the importance of the long term – funding pensions that will be paid over the next 20, 30 or 40 years; with the short-term movement of interest rates and investment performance? Adding to the complexity of decision making, are the inevitable changes to the banks within the Association. Financials for Plan A, Plan C and CBERA for 2016 are available on this website. As for the Association, we continue to adjust the mix of revenue between direct bank assessments and charges against our four qualified plan Trusts. Most importantly, even as of employer membership changes, we earned enough revenue to cover our expenses in 2016 and added to our surplus that exceeds a $1 Million.

During 2016, we received the fantastic news that Coastal Heritage Bank had decided to remain in the Association and bring over the 410k assets of Scituate Federal Savings. The Bank, with the assistance of a consultant, had done a thorough competitive search to determine who would provide 401k services to the combined 401k assets of S-Bank and Scituate Federal. I want to express my thanks to Don Gill, his senior Staff and his Board for the vote of confidence in CBERA. Two days of meetings were held in December at the Bank explaining the value of CBERA and particularly Plan A. Assets were moved over to Plan A on March 2.

Also during 2016, Easthampton Savings Bank and Hometown Bank, two parts of the Hometown Bank holding company decided to move employees from Easthampton to Hometown. As a result, those employees, who had previously worked at CNB of Putnam, CT before its merger with Easthampton, joined Plan A in November.

With these two corporate activities, 91 individuals and $3.4 Million became part of Plan A. As of the end of March, Plan A had $472M in assets and 4,500 participants, 2,900 who are currently contributing.

Fortunately, the recent merger activity has been a positive for CBERA. The Banks that have resulted from the mergers are stronger and more viable for the long term. Bank mergers will continue. We must compete to retain every organization. CBERA will be tested to better manage our resources, to present the way we build relationships to potential employers, and most importantly continue to provide high value to each of our current participants and banks. I believe we are up to adapting and changing with the industry we serve.

I would like to thank our Board of Trustees, led by Kevin Tierney as Chairman and Joe Scholl as Vice-Chairman. They work for the benefit of every participant, and help me and Kevin prioritize what we need to do to support you and your banks. Special thanks to our two Trustees who are leaving the Board today after completing three terms, Jeff Liber of Wrentham Coop and John Korona of Mansfield Bank. Both have been important members of the Board. For John, it ends a span of time where he will have served on the Board for more than 18 out of the last twenty years. John returned to the Board after being off for about a year and half, at a time when the Board needed an experienced former Trustee to aid in its deliberations. During his time on the Board, John served as Chairman and member of the Investment Review Committee. He influenced, through actively participating in many Investment Review and full Board meetings, much of current investment structure of both Plan A and the Group Trust. He was also part of the decision-making that led to the selection of T. Rowe Price 17 years ago, likely the Board’s best decision over the past 20 years. The Board and I will greatly miss his contributions.

Finally, I would like to thank Kevin, Wah, Terry, Jennifer, Mary Sue for everything they do each day to make my job easier and occasionally, fun.

CBERA remains committed to Building Successful Retirements.

Filing Information

Plan A

To view the 2016 Annual Return (Form 5500) for Plan A Click Here

To view the 2015 Annual Return (Form 5500) for Plan A Click Here

To view the 2014 Annual Return (Form 5500) for Plan A Click Here

Plan C

To view the 2016 Annual Return (Form 5500) for Plan C Click Here

To view the 2015 Annual Return (Form 5500) for Plan C Click Here

To view the 2014 Annual Return (Form 5500) for Plan C Click Here

Institution for Savings

To view the 2015 Annual Return (Form 5500) for Institution for Savings Click Here

To view the 2014 Annual Return (Form 5500) for Institution for Savings Click Here

To view the 2013 Annual Return (Form 5500) for Institution for Savings Click Here

Adams Community Bank

To view the 2015 Annual Return (Form 5500) for the Adams Community Bank Plan Click Here

To view the 2014 Annual Return (Form 5500) for the Adams Community Bank Plan Click Here

To view the 2013 Annual Return (Form 5500) for the Adams Community Bank Plan Click Here

Use this link to view additional years filings.

Pension Plans: The Reward and Challenge

Below are the key paragraphs from an article written by our President, Frank Maloney, that appeared in Massachusetts Banker Magazine 4th quarter 2012.

Community banks have been offering their employees retirement plans since the 1940s. This employee benefit has been valued by many generations of tellers, customer service representatives and officers. As the years have passed, the form of retirement benefits has changed with the industry and the needs of its employees. Before moving to the next generation of plans, this article will argue for maintaining and strengthening the traditional form: the defined benefit plan. The defined benefit is an ideal way to retain and incent those employees critical to each institution’s success.

From the employer’s perspective, the funding of a pension plan is more efficient than a 401k plan in providing benefits to those employees who are most concerned about retirement. The efficiency comes from hiring professional investment managers with instructions to focus on the long term best interest of the plan and its participants. This approach leads to less overreaction to changes in the marketplace and better maintenance of strategic long range asset allocation as compared to a typical 401k investor. Funding costs are spread over working careers of participants. There is opportunity for favorable investment returns and plan census experience to reduce costs. Finally, a well run plan will also have administrative efficiencies.

Employers do have the tools and investment alternatives to address these challenges. As with any employee benefit, its value is derived from the understanding and appreciation by the employee population. Employees must be educated about the value of a benefit that is fully funded by the employer and provided without their responsibility to make good investment choices; is not subject to investment market fluctuations; its value grows more rapidly as time of retirement nears; and will be paid to them for the rest of lives. These strengths will attract and retain talented individuals.

Even as the number of investment tools increase to deal with the challenges of maintaining a well-funded plan, the reality of low interest rates require more employer contributions. Making additional contributions, up to tax-deductible limits, has several advantages. It is an effective way of improving funded status, of using the low earning cash residing on an employer’s balance sheet more strategically, taking advantage of tax planning opportunities, as well as providing future funding flexibility when investing in business ventures may be a more appropriate use of the cash. These contributions would also reduce future PBGC variable premiums. By employing different investment structures in the plan’s portfolio and contributing more, volatile and increasing funding expenses can be better managed.

A well-administered, well-invested and well-funded pension plan can continue to meet the needs of community banks and their employees.

Want More Information?

For information about CBERA and our plans, including requests for benefit estimates - contact CBERA at 781-551-8500.
Click here to submit an online information request form or click here to inquire via email.