Agenda Item 6A
April 18, 2017
Introduction
MEMORANDUM
April 14,2017
TO:
FROM:
County Council
Robert H. Drummer, Senior Legislative
AttorneY~r\J
~\
SUBJECT:
Introduction:
Expedited Bill 11-17, Retirement - Board of Investment Trustees -
Consolidated Retiree Health Benefit Trust Board of Trustees - Powers and Duties ­
Montgomery County Group Trust
Expedited Bill 11-17, Retirement - Board of Investment Trustees - Consolidated Retiree
Health Benefit Trust Board of Trustees - Powers and Duties - Montgomery County Group Trust,
sponsored by Lead Sponsor Council President at the request of the County Executive, is scheduled
to be introduced on April 18. A public hearing is tentatively scheduled for April 25 at 1:30 p.m.
Bill 11-17 would permit the County's employee benefit trusts to create a group trust
allowing the individual employee benefit trusts to invest through one vehicle. The different
employee benefit trusts include the Employees' Retirement System, the Retirement Savings Plan,
the Deferred Compensation Plan, and the Consolidated Retiree Health Benefits Trust. The Bill
would amend the County's retirement law, and the law governing the consolidated retiree health
benefits trust, to permit the Board of Investment Trustees and the Consolidated Retiree Health
Benefits Trust Board of Trustees to establish a group trust. The Bill would allow the participating
trusts to access certain investment opportunities which may otherwise be closed to new investors
due to capacity or other constraints, and reduce the administrative work effort across the
investment programs of the trust funds.
Many of the current investments held by the much larger Employees' Retirement System
are closed to new investors and therefore unavailable to the smaller Consolidated Retiree Health
Benefit Trust. The Bill would lead to lower costs and greater returns by opening these investment
opportunities to each employee benefit trust by investing through this single vehicle. Numerous
other pension systems use a group trust structure to gain economies of scale and efficiencies by
aggregating assets across multiple trusts.
This packet contains:
Expedited Bill 11-17
Legislative Request Report
Executive's Transmittal Memo
Fiscal and Economic Impact Statement
F:\LAW\BILLS\1711 Retirement - Group Trust\Intro Memo.Docx
Circle #
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Expedited Bill No.
11-17
Concerning: Retirement - Board of
Investment Trustees - Consolidated
Retiree Health Benefit Trust Board of
Trustees - Powers and Duties ­
Montgomery County Group Trust
Revised: April 10. 2017
Draft No. _1_
Introduced:
April 18, 2017
Expires:
October 18, 2018
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date: ---=-:.No=n..:..::e'--_ _ _ _ __
Ch. _ _, Laws of Mont. Co. _ _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
Lead Sponsor: Council President at the request of the County Executive
AN EXPEDITED ACT
to:
(1)
create a group trust to permit the County's employee benefit trusts to invest through
one vehicle to create investment opportunities and efficiencies; and
(2)
generally amend the law regarding the Employees' Retirement System, Retirement
Savings Plan, Deferred Compensation Plan and Consolidated Retiree Health
Benefits Trust.
By amending
Montgomery County Code
Chapter 33, Personnel and Human Resources
Sections 33-60, 33-125, 33-145, and 33-162
By adding
Montgomery County Code
Chapter 33, Personnel and Human Resources
Section 33-170
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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EXPEDITED BILL
No. 11-17
1
Sec. 1. Sections 33-60,33-125,33-145 and 33-162 are amended and
Section 33-170 is added as follows:
33-60. The board of investment trustees-Powers and duties.
2
3
4
* *
(d)
section, the Board has the power to:
*
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Trustee powers.
Subject to the limitations under subsection (a)(2) ofthis
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11
*
*
*
(16) Pool all or any of the assets of the trust, from time to time, with
assets belonging to any other retirement plan trust or retiree health
benefit trust created by the County, and commingle such assets and
make joint or common investments and
£illIY
joint accounts on
behalf of this trust and such other trust or trusts, allocating
undivided shares or interests in such investments or accounts or in
any pooled assets to the two or more trusts in accordance with their
respective interests. Consistent with its investment authority in
this Article, the Board may also buy or sell any assets or undivided
interests in this trust or in any other trust with which the assets of
this trust may be pooled, to or from this trust or such other trusts at
such prices or valuations as the Board may determine.
Q1)
Do all acts which it considers necessary and exercise any and all
powers of this article with respect to the management of the
retirement system, and in general, exercise all powers in the
management of the assets which an individual could exercise in
the management of property owned in the individual's own right
except for making an individual investment selection.
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*
33-125. Powers and duties of the Board.
*
*
o
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EXPEDITED BILL
No.
11-17
28
*
(d)
may:
*
*
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Trustee powers.
Except as otherwise provided in this Division, the Board
*
(16)
*
*
pool all or any of the assets of the trust, from time to time, with
assets belonging to any other [qualified pension or profit sharing
trust] retirement plan trust or retiree health benefit trust created by
the County, and commingle such assets and make joint or common
investments and carry joint accounts on behalf of this trust and
such other trust or trusts, allocating undivided shares or interests in
such investments or accounts or in any pooled assets to the two or
more trusts in accordance with their respective interests.
Consistent with its investment authority, the [The] Board may also
buy or sell any assets or undivided interests in this trust or in any
other trust with which the assets of this trust may be pooled, to or
from this trust or such other trusts at such prices or valuations as
the Board may determine; and
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*
33-145. Powers and duties
of
the
board.
*
*
*
*
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*
(e)
may:
Trustee powers.
Except as otherwise provided in this Article, the Board
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*
(14)
*
*
pool all or any ofthe assets ofthe deferred compensation plan trust
with assets belonging to any other [qualified pension or profit
sharing trust] retirement plan trust or retiree health benefit trust
created by the County. The Board may commingle the assets and
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(!)
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EXPEDITED BILL
No. 11-17
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make joint or common investments and carry joint accounts on
behalf of the deferred compensation plan trust and one or more
other trusts, allocating undivided shares or interests in the
investments or accounts, or in any pooled assets, to the trusts
according to the trusts' respective interests. Consistent with its
investment authority in this Article, the [The] Board also may buy
or sell any assets or undivided interests in any trust where the assets
of the deferred compensation plan trust are pooled at the prices or
valuations that the Board determines; and
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*
33-162. Trust
Fund
management.
*
*
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*
(h)
may:
*
*
Board Powers.
Except as otherwise provided in this Article, the Board
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*
(13)
*
*
hold, buy, transfer, surrender, and exercise all other incidents of
ownership of any insurance or annuity contract; [and]
(14)
pool all or any of the assets of the trust, from time to time, with
assets belonging to
any
retirement
plan
trust or other retiree health
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benefit trust created
Qy
the County, and commingle such assets and
make joint or common investments and
~
joint accounts on
behalf of this trust and such other trust or trusts, allocating
undivided shares or interests in such investments or accounts or in
any pooled assets to the two or more trusts in accordance with their
respective interests. Consistent with the authority granted in this
Article, the Board may also buy or sell any assets or undivided
interests in this trust or in any other trust with which the assets of
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e>
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EXPEDITED BILL
No. 11-17
82
this trust may be pooled, to or from this trust or such other trusts at
such prices or valuations as the Board may determine; and
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do any act that the Board finds necessary and exercise the power
of this Article to manage the Trust Fund. The Board may exercise
all powers to manage the assets that an individual could exercise
to manage property owned by that individual.
*
33-170.
ill}
*
*
Article XII MONTGOMERY COUNTY GROUP TRUST
Montgomery County Group Trust.
Creation Q[Group Trust.
The Board of Investment Trustees established
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under Article
III
and the Consolidated Retiree Health Benefits Trust
Board of Trustees established under Article XI may create
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combined,
common or commingled trust fund known as the Montgomery County
Group Trust for the commingling ofassets of any retirement plan and any
retiree health benefit trust created
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the County under this Chapter.
(hl
Purpose.
The Montgomery County Group Trust is established solely for
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the purpose of creating
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collective investment vehicle intended to create
investment opportunities and efficiencies for the investment of
Montgomery County's employee benefit plan trusts. The interests of
each investing trust must be accounted for separately and the assets
attributable to an investing trust must be held for the benefit of that trust
only within the general holdings ofthe Montgomery County Group Trust.
No employee benefit plan trust must be deemed to have an individual
ownership interest in any asset held
Qy
the Montgomery County Group
Trust. Instead, each employee benefit plan trust must have an undivided
ownership interest
in
the Montgomery County Group Trust, with each
trust owning an undivided ownership interest
in
its respective subtrust
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108
())
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EXPEDITED BILL
No. 11-17
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within the Montgomery County Group Trust, and must share
proportionately with all other employee benefit plan trusts participating
in the Montgomery County Group Trust in the net income, profits, and
losses thereof.
(£}
Participation in Group Trust.
The Board of Investment Trustees may
elect to invest assets of the Employees' Retirement System, Retirement
Savings Plan, and/or Deferred Compensation Plan through the
Montgomery County Group Trust, and the Consolidated Retiree Health
Benefits Trust Board of Trustees may elect to invest assets of the
Consolidated Retiree Health Benefits Trust through the Montgomery
County Group Trust. Each board must discharge its duties with respect
to its respective employee benefit plan trust in accordance with the
provisions of Sections 33-61 or 33-163, as applicable, and this Section
33-170.
@
Implementation and Administration Authority.
The Board of Investment
Trustees established under Article
-
- - - -
Consolidated Retiree
III and the
Health Benefits Trust Board of Trustees established under Article XI
must have the authority to:
ill
implement the Montgomery County Group Trust, as authorized
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subsection
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after consulting any other participating retirement
plan trust or retiree health benefits trust with
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separate Board of
Trustees;
ill
develop and maintain the Montgomery County Group Trust:
modify or amend the terms of the Montgomery County Group
Trust; and
ill
ill
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retain any service providers
i!
deems appropriate to
~
out these
actions.
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EXPEDITED BILL
No. 11-17
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The terms of the Montgomery County Group Trust must be contained in
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written document.
ill
Custodian.
The Director of Finance must serve as the custodian of the
Montgomery County Group Trust and must give bond with
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surety and
for
~
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period and in an amount as the Boards determine. If the Boards
approve, the Director ofFinance may make written contracts with banks,
trust companies, insurance companies, or investment companies
authorized to do business in any state for the safe custody of investments,
banking services, the payment of benefits and expenses, and any other
function necessID to manage and safeguard the assets ofthe Group Trust.
Trustees.
- - - -
the Board
-
of Investment Trustees
- -
Chair
The Chair of
-
and the
of the Consolidated Retiree Health Trust Board of Trustees must be the
Trustees ofthe Montgomery County Group Trust. The Trustees may take
administrative action
by
joint action taken at
~
meeting,
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unanimous
written consent, or
by
any other method as set forth in the Montgomery
County Group Trust Declaration of Trust approved in writing
by
both
Trustees. The Trustees may appoint
~
directed Trustee.
Investment Authority.
Board
-
Investment Trustees
- -
of
and the
Consolidated Retiree Health Benefits Trust Board of
-=-.::..:==---­
Trustees have the
The
-
authority to select the investments of the Montgomery County Group
Trust consistent with the authority granted under Articles III, Article VIII,
Article IX and Article XI.
ili.)
Delegation
Q[
Signature Authority.
In its written policies and
procedures, the Board of Investment Trustees and the Consolidated
Retiree Health Benefits Trust Board of Trustees may authorize
Trustee, the Executive Director or
~
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similarly situated Montgomery
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EXPEDITED BILL
No. 11-17
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County employee to execute instruments on behalf of the Montgomery
County Group Trust.
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Withdrawal
Q[
an Employee Benefit Plan Trust.
An
employee benefit
plan trust may withdraw, in whole or in part, from the Montgomery
County Group Trust at any time upon action
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its board. The amount
distributed to the employee benefit plan trust upon the withdrawal in
whole or in part will be equal to the value of the employee benefit plan
trust, or part thereof, on the date as ofthe effective date ofthe withdrawal.
ill
Termination
Q[
Group Trust.
Termination of an employee benefit plan
trust's participation in the Montgomery County Group Trust or an
employee benefit plan trust's interest in the Montgomery County Group
Trust must have no effect on the continuance ofthe Montgomery County
Group Trust with respect to any other employee benefit plan trust whose
participation or interest is not so terminated.
Notwithstanding this
Section, the County Council may terminate the Montgomery County
Group Trust at any time. If the Montgomery County Group Trust is
terminated, the assets of the Montgomery County Group Trust must be
returned to the board of the respective employee benefit plan trusts
participating in the Montgomery County Group Trust. Assets of the
Montgomery County Group Trust may only be used for the exclusive
purpose ofproviding benefits to members and beneficiaries and defraying
reasonable expenses of administering each respective employee benefit
plan trust and the Montgomery County Group Trust.
Procurement.
Chapter
11B
does not
mm!Y
to the procurement of goods
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(k)
and services for the Montgomery County Group Trust.
Sec. 2.
Expedited Effective Date.
l~lation
188
The Council declares that this
is necessary for the immediate
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EXPEDITED BILL
No. 11-17
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protection ofthe public interest. This Act takes effect on the date on which it becomes
law.
Approved:
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Roger Berliner, President, County Council
Date
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Approved:
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Isiah Leggett, County Executive
Date
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This is a correct copy ofCouncil action.
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Linda M. Lauer, Clerk of the Council
Date
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LEGISLATIVE REQUEST REPORT
Expedited Bill 11-17
Retirement
-
Board ofInvestment Trustees
-
Consolidated Retiree Health Benefit Trust
Board ofTrustees
-
Powers and Duties
-
Montgomery County Group Trust
DESCRIPTION:
The Bill amends the County's retirement law, and the law governing
the consolidated retiree health benefits trust, to permit the Board of
Investment Trustees and the Consolidated Retiree Health Benefits
Trust Board of Trustees to establish a group trust. The group trust
would permit the Boards to secure investment opportunities and
obtain administrative efficiencies for the County's retirement plans
and the consolidated retiree health benefits trust.
The Bill would allow the participating trusts to access certain
investment opportunities which may otherwise be closed to new
investors due to capacity or other constraints, and reduce the
administrative work effort across the investment programs of the
trust funds.
PROBLEM:
GOALS AND
OBJECTIVES:
To permit the Board of Investment Trustees and the Consolidated
Retiree Health Benefits Trust Board of Trustees to establish a
group trust. The group trust would allow the Boards to create
investment opportunities and obtain administrative efficiencies for
the County's retirement plans and the consolidated retiree health
benefits trust.
COORDINATION:
Montgomery County Employee Retirement Plans, Finance
FISCAL IMP ACT:
Office of Management and Budget
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
Department of Finance
N/A
Numerous other pension systems utilize a group trust structure to
gain economies of scale and efficiencies by aggregating assets
across multiple trusts. The Boards are currently authorized by the
County Code to commingle trust assets into a group trust for
investment purposes.
SOURCE OF
INFORMATION:
Linda Herman, Montgomery County Employee Retirement Plans
/0
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Amy Moskowitz, Office of the County Attorney
Groom Law Group, outside legal counsel for the Board of Investment
Trustees and Board of Trustees
APPLICATION
WITHIN
MUNICIPALITIES:
NI
A
PENALTIES:
NI
A
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OFFICE OF TIlE COUNTY EXECUTNE
ROCKVILLE, MARYLAND 20850
Isiah
Leggett
County Executive
MEMORANDUM
April 7,2017
TO:
FROM:
SUBJECT:
Roger Berliner, Montgomery County Council President
Isiah Leggett, County Executive
-p,..;t
~
Expedited Legislation to Amend Chapter 33, Personnel and Human
Resources.
I am attaching for the Council's consideration a bill that would amend the
County's law related to the retirement plans and the consolidated retiree health benefits
trust to permit the Boards overseeing the investment programs to establish a group trust.
The Employees' Retirement System, Consolidated Retiree Health Benefits Trust.
Retirement Savings Plan, and the Deferred Compensation Plan will be considered the
participating trusts in the group trust. The Boards are authorized by County Code
sections 33-60(d), 33-125(d), 33-145(e) and 33-162(h) to commingle the corpus of such
trusts for investment purposes.
The group trust would create an investment vehicle to commingle the
assets of each participating trust, if the Board has so authorized, to secure investment
opportunities and obtain administrative efficiencies for the participating
trusts.
The
group trust is intended to qualifY as a group
trust
under Internal Revenue Service
Revenue Ruling 81-] 00 as amended by Revenue Rulings 2004-67, 2008-40, 2011-1, and
2014-24, and any successor ruling, regulation, or similar pronouncement. In accordance
with County Code section 33-170(e), the Chair of the Board ofInvestment Trustees and
the Chair of the Consolidated Retiree Health Benefits Trust Board ofTrustees shall serve
as the trustee ofthe group trust.
Thank you for your consideration of this matter.
Attachments:
Draft
legislation
Cc:
Linda Herman, Executive Director, MCERP
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I .....
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:
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Fiscal Impact Statement
Bill XX-I7 - Retirement - and Consolidated .Retiree Health Benefit Trust
1. Legislative Summary
"The bill would create a group trust for purposes of allowing the County's employee
benefit trusts to invest through one vehicle. to create investment opportunities and to
streamline administration. Many ofthe cun'ent investments held in the Employees'
Retirement System are
clos~d
to new investors including the Consolidated Retiree Health
Benefit Trust (CRHBT). Currently the CRHBT accesses some managers via their
commingled product which results
in
higher fees and limited access to products that are
not closed to new investors.
2. An estimate of changes in County revenues and expenditures regardless ofwhetber
the revenues or expenditures. are assumed in the recommended or approved budget.
Includes source of information, assumptions, and methodologies used.
If the CRHBT cannot access the managers they will either pay a higher fee or find
another manager with little or no exposure to the asset sector and strategy. These factors
will result
in
lower revenues to the CRHBT, however the degree of increase in fees and
decrease in revenues is indeterminable at this time. The bill would allow the Consolidated
Retiree Health Benefits Trust the opportunity to access additional investment managers,
with no change to the fee or expense structure for investment.
3. Revenue and expenditure estimates covering at least the next 6
flSCaJ
years.
See response #2.
4. An actuarial analysis through the entire amortization period for each bill that would
affect retiree pension or group insurance costs.
Not applicable.
5.
An
estimate of expenditures related to County's information technology (IT)
systems, including Enterprise Resource Planning (ERP) systems.
Not applicable.
6. Later actions that may affect future revenue and expenditures if the bill authorizes
future spending.
Not applicable.
7. An estimate of the staff time needed to implement the bill.
Not applicable.
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8. An explanation of how the addition of new staff responsibilities would affect other
duties.
Not applicable.
9.
An
estimate of costs when an additional appropriation
is
needed.
Not applicable.
10. A description of any variable that could affect revenue and cost estimates.
Not applicable.
11. Ranges of revenue or expenditures that are uncertain or difficult to project.
Not applicable.
12.
If
a bill is Jikely to have no fiscal impact, why that is the case.
Not applicable.
13. Other fiscal impacts or comments.
Not applicable.
14. The following contributed to and concurred with this analysis:
Corey Orlosky, Office of Management and Budget
Linda Herman, Director. Montgomery County Employee Retirement Plans
Date
3,/3D/t7
I
-------------------
-
._--_._---------­
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..
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Economic lmpact Statement
Bill ##-17, Retirement and Consolidated Retiree Health Benefit Trust
Background:
This legislation would:
• establish a group trust for purposes of allowing the County's retirement plans and
the consolidated retiree health benefits trust to invest through one vehicle to
access investment opportunities and efficiencies; and
• amend the law regarding the Employees' Retirement System (ERS), Retirement
Savings Plan (RSP), Deferred Compensation Plan (OCP), and Consolidated
Retiree Health Benefits Trust (CRHBT).
The purpose of the legislation is to create
an
investment vehicle, i.e., a group trust, that
would commingle certain assets ofeach participating trust for investment purposes only;
The establishment ofthe group trust is to secure investment opportunities with managers
of investment vehicles which may otherwise
be
closed to new clients due to capacity or
other constraints.
The
proposed legislation would also provide efficiencies for the
participating trusts.
1.
The sources of information, assumptions, and methodologies used.
Source of information includes the Board of Investment Trustees (BIT) and the
CRHBT Board of Trustees. Based on information provided by the Boards, the
proposed legislation would allow participating
trusts
the opportunity to access certain
investment opportunities. By allowing such access and increasing investment
opportunities, the revenue to the Trust Funds may be increased and the fees may be
reduced resulting in the County's contributions to the Trust Funds being reduced.
By
permitting participating trusts to expand their investment opportunity set through the
potential reduction in fees, the Trust Funds would gain economies of scale and
administrative efficiencies.
2. A description of any variable that could affect the economic impact estimates.
The variables that could affect the economic impact
are
the number ofinvestment
opportunities that could
be
accessed resulting
in
the potential increase in revenue and
reduction in fees.
3. The Bill's positive or negative effect, if any on employment, spending, savings,
investment, incomes, and property values in the County.
Bill ##-17
may have a positive economic impact on incomes to the County residents
because the creation of a group trust could reduce the costs to the County through
reduced contributions and therefore could reduce taxes paid by the County residents.
The amount of reduction to the County's contributions and subsequent effects on
taxes would
be
determined by the investment opportunities accessed, the revenue
generated, and the reduction in fees.
Page
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Economic Impact Statement
Bill ##-17, Retirement and Consolidated Retiree Health Benellt Trust
4.
If
a BiD is likely to have no economic impact, why
is
that the case?
Please see paragraph
3.
5. The following contributed to or concurred with this
analy~is:
David
Platt,
Dennis
Hetman, and Robert Hagedoorn.
fil1an~e.
Alexandre A. Espino a, Director
Department of Finance
Date
Page 2 of2