Notes to Financial Statements
1. Summary Description of the Plan
General
The PolyOne Retirement Savings Plan (the Plan) is a defined contribution plan that covers substantially all employees of PolyOne Corporation (the Company or Plan Administrator) and its subsidiaries, other than employees covered under a collective bargaining agreement unless such agreement calls for participation in the Plan, leased employees, nonresident aliens, other employees regularly employed outside of the United States, persons classified by the Company as anything other than employees (even if that classification is later changed) and employees of certain subsidiaries. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
The following summary description of the Plan is provided for general information purposes only. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
The Plan is sponsored by the Company and is administered by the PolyOne Corporation Retirement Plan Committee (the Retirement Plan Committee).
Contributions
Employee
Participants may elect a bi-weekly payroll deduction from 1% to 90% of eligible earnings. The Retirement Plan Committee has the authority, at its discretion, to reduce the employees’ bi-weekly contribution percentage in order to maintain the tax-qualified status of the Plan.
The Plan offers participants the choice of pre-tax, after-tax and Roth savings options. Participants may elect to participate in one or more of the savings options. Under each savings option, participants may direct that contributions be invested in any eligible funds offered by the Plan. Participants may change their investment options daily.
The Plan provides for the acceptance of rollover contributions from other plans qualified under the Internal Revenue Code (IRC), provided certain conditions are met.
Employer
The Company provides for a matching contribution equal to 100% of the first 3% and 50% of the next 3% of the participant’s eligible deferred compensation. Prior to April 17, 2017, the Company made a retirement contribution for each participant equal to no less than 2% of eligible earnings, regardless of participation. Both the employer's matching contributions and the 2% retirement contributions follow participants' investment elections. Effective April 17, 2017, the Company ceased making the 2% retirement contributions. The Plan also permits the Company to make an additional discretionary matching contribution of up to 4%. No additional discretionary matching contributions were made in 2019.
Forfeiture balances result from participant terminations within the Plan and represent the related unvested balance. The forfeiture account in the Plan totaled $2,048 and $743,634 at December 31, 2019 and 2018, respectively. The balance in this account will be used to fund future Company contributions or Plan expenses.
Vesting
Participant contributions and Company matching contributions are fully vested immediately. Company retirement contributions are 100% vested after three years of service.
Participant Notes Receivable
Participants may borrow a maximum amount equal to the lesser of 50% of their vested account balance (excluding certain employer contributions) or $50,000, subject to certain Department of Labor and Internal Revenue Service (IRS) requirements. The Plan provides that loan amounts must be a minimum of $1,000. The notes receivable are collateralized by the participant’s vested account balance. Interest is charged to the borrower at the prime rate plus 1%. Payments on notes receivable are primarily made through payroll deductions and must be repaid within five years (personal loans) or up to fifteen years (primary residence loans).
Plan Withdrawals and Distributions
Active participants may make hardship withdrawals from certain portions of their account. Age-based in-service withdrawals are available from the participants' vested account balance.
Plan distributions are made to participants or their designated beneficiary upon normal retirement, disability, or death, in the full amounts credited to their participant account. A participant who leaves employment of the Company before normal retirement for reasons other than disability, death, or a reduction in workforce is eligible to receive all amounts credited to their account relating to participant contributions, including rollovers, and the vested portion of employer contributions. Distributions are made in either a single lump sum or periodic payments. Additionally, employees of select merged plans may elect a portion in a lump sum with the remainder paid in periodic payments, a single life annuity for single participants, or a joint and 50% or 100% survivor annuity with the participant’s spouse as the joint annuitant for married participants if these options were available under their previous plan.
Plan Termination
Although the Company has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. Upon either of these events, the accounts of each affected employee will vest immediately, and participants will receive a distribution of their total participant account balance.
Administrative Expenses
Participants are charged investment management fees, which are netted with the returns of the respective investment. Plan expenses will be paid by balances in the forfeiture account and a quarterly participant fee.
2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared using the accrual basis of accounting.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Plan's management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Benefit Payments
Benefit payments are recorded when paid.
Participant Notes Receivable
Participant notes receivable are recorded at their unpaid principal balances plus any accrued interest. Participant notes receivable are written off when deemed uncollectible.
Valuation of Investments and Income Recognition
Investments are stated at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). See Note 5, Fair Value Measurement, for further discussion and disclosures related to fair value measurements.
Purchases and sales of securities are recorded on a trade-date basis, interest income is recorded on the accrual basis and dividends are recorded on the ex-dividend date. The Plan presents, in the Statement of Changes in Net Assets Available for Benefits, the net appreciation or depreciation in the fair value of its investments, which consists of the realized and unrealized gains or losses on those investments.
3. Plan Mergers
Effective December 31, 2019, the Fiber-Line 401(k) Plan, a defined contribution plan sponsored by a subsidiary of the Company, was merged into the Plan. Accordingly, all the participants' assets in the Fiber-Line 401(k) Plan totaling $10,948,212 were accounted for in the Plan on December 31, 2019. This amount is included in the Transfers into the plan line item on the Statement of Changes in Net Assets Available for Benefits.
Effective December 31, 2018, the PlastiComp, Inc. 401(k) Plan, a defined contribution plan sponsored by a subsidiary of the Company, was merged into the Plan. Accordingly, all of the participants' assets in the PlastiComp, Inc. 401(k) Plan totaling $2,279,678 were accounted for in the Plan on December 31, 2018.
Subsequent to the mergers, the respective plans ceased to exist.
4. Self-Directed Brokerage Accounts
In addition to the standard investment options of the Plan, brokerage accounts are available to Plan participants through Fidelity National Financial Services, and are comprised of various investments made at the sole direction of the Plan participants.
5. Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurement, assets and liabilities measured at fair value are categorized into the following fair value hierarchy:
Level 1 - Fair value is based on quoted prices in active markets that are accessible to the Plan at the measurement date for identical assets or liabilities.
Level 2 - Fair value is based on inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. These Level 2 inputs include quoted prices for similar assets in active markets, and other inputs such as interest rate and yield curves that are observable.
Level 3 - Fair value is based on unobservable inputs for the assets or liabilities. Level 3 inputs include the Plan management’s own assumption about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant to the fair value measure in its entirety. The Plan’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset.
The following is a description of the valuation methodologies used for assets measured at fair value, including the general classification of such assets pursuant to the valuation hierarchy.
Mutual funds: Registered investment companies or mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-end mutual funds that are registered with the U.S. Securities and Exchange Commission. These funds are required to publish their daily net asset value (NAV) and to transact at that price. The mutual funds held by the Plan are deemed to be actively traded and are classified within Level 1 of the valuation hierarchy.
Company common stock: The Plan invests in a unitized fund, which holds PolyOne Corporation common stock and short-term investments (see below for additional details on short-term investments). Common stock is valued at the closing price reported on the active market on which the individual security is traded. Common stock is classified within Level 1 of the valuation hierarchy.
Short-term investments: Short-term investments held by the Plan at December 31, 2019 and 2018 consist of interest-bearing cash and money market funds. Interest-bearing cash is classified within Level 2 of the valuation hierarchy and is valued at fair value based on the outstanding balances. The money market funds are valued based on quoted active market prices and are classified within Level 1 of the valuation hierarchy.
Self-directed brokerage accounts: The Plan allows participants to invest in self-directed brokerage accounts. The self-directed brokerage accounts include investments in common stock, mutual funds, and short-term investments.
Pooled separate account: The Plan holds interests in a Stable Value Fund, which consists of an investment in the New York Life Insurance Anchor Account (the Anchor Account), which is not traded in an active market, and is valued at the NAV per share of the fund as a practical expedient for the estimated fair value of the fund. This practical expedient would not be used if it is determined to be probable that the fund will sell the investment for an amount different from the reported NAV. The NAV is provided by the fund sponsor and verified using the audited financial statements of the fund. The Anchor Account is made available to the participating plans through a group annuity contract. The group annuity contract is an investment contract that is benefit-responsive, meaning it provides for a stated return on principal invested over a specified period and permits withdrawals at a contract value for benefit payments, loans, or transfers to other investment options offered to the participant by the Plan. Participant transactions (purchases and sales) may occur daily. If the Plan initiates a full redemption of the Stable Value Fund, the issuer reserves the right to require 12 months' notification to ensure the liquidation of securities is carried out in an orderly business manner.
Common collective trust funds: Common collective trust funds represent investments held in pooled funds. The Plan's interests in the collective trust funds are valued at NAV provided by the fund sponsor. The accuracy of the NAV is verified using the audited financial statements of the collective trust funds. The NAV, as provided by the fund sponsor, is used as a practical expedient to estimate fair value. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. Participant transactions (purchases and sales) may occur daily. If the Plan were to initiate a full redemption of the collective trust funds, the investment advisors reserves the right to temporarily delay withdrawal from the trust in order to ensure the liquidation of securities is carried out in an orderly business manner.
The fair values of the Plan's investments at December 31, 2019 and 2018, by asset category, are as follows:
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Assets at Fair Value as of December 31, 2019
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Total
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Level 1
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Level 2
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Mutual funds
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$
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259,624,923
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$
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259,624,923
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$
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—
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Company common stock
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46,409,334
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46,409,334
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—
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Short-term investments
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1,808,467
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357,321
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1,451,146
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Self-directed brokerage accounts
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23,096,105
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18,647,802
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4,448,303
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Total
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$
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330,938,829
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$
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325,039,380
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$
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5,899,449
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Investments measured at net asset value:
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Pooled separate account - Stable value fund
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63,186,036
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Common collective trust funds
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193,552,946
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Total investments, at fair value
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$
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587,677,811
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Assets at Fair Value as of December 31, 2018
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Total
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Level 1
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Level 2
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Mutual funds
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$
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200,154,588
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$
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200,154,588
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$
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—
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Company common stock
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38,331,732
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38,331,732
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—
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Short-term investments
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1,079,757
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58,539
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1,021,218
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Self-directed brokerage accounts
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19,937,504
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15,289,315
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4,648,189
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Total
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$
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259,503,581
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$
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253,834,174
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$
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5,669,407
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Investments measured at net asset value:
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Pooled separate account - Stable value fund
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66,467,321
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Common collective trust funds
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159,719,630
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Total investments, at fair value
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$
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485,690,532
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Investments in Entities that Calculate Net Asset Value Per Share
The following tables summarize investments for which fair value is measured using the NAV per share as a practical expedient as of December 31, 2019 and 2018:
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December 31, 2019
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Fair Value
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Unfunded Commitments
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Redemption Frequency (if currently eligible)
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Redemption Notice Period
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New York Life Insurance Anchor Account
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$
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63,186,036
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n/a
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Daily
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12 Months
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Loomis Core Plus Fixed Income
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23,452,044
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n/a
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Daily
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Daily
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T. Rowe Price Retire 2005
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2,389,341
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2010
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2,567,504
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2015
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4,741,168
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2020
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19,585,120
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2025
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31,617,606
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2030
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30,870,250
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2035
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26,933,313
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2040
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19,401,156
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2045
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12,891,177
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2050
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8,852,944
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2055
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8,200,442
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2060
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2,050,881
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n/a
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Daily
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30 days
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December 31, 2018
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Fair Value
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Unfunded Commitments
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Redemption Frequency (if currently eligible)
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Redemption Notice Period
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New York Life Insurance Anchor Account
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$
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66,467,321
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n/a
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Daily
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12 Months
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Loomis Core Plus Fixed Income
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22,932,055
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n/a
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Daily
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Daily
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T. Rowe Price Retire 2005
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1,806,043
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2010
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2,420,836
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2015
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5,187,692
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2020
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19,675,510
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2025
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26,626,963
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2030
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23,628,912
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2035
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20,757,683
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2040
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14,105,801
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2045
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9,356,484
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2050
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6,815,777
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2055
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5,389,214
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n/a
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Daily
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30 days
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T. Rowe Price Retire 2060
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1,016,660
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n/a
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Daily
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30 days
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Participants in the Anchor Account may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. Withdrawals and transfers resulting from certain events, including employer initiated events may limit the ability of the fund to transact at contract value. These events may cause liquidation of all or a
portion of a contract at market value. The Plan Administrator believes that the occurrence of any event which would limit the Plan’s ability to transact at contract value is not probable.
6. Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits.
7. Party in interest Transactions
As of each of December 31, 2019 and 2018, the Plan was invested in certain investments managed by Fidelity Management Trust Company, Fidelity National Financial Services, or their affiliates (collectively, Fidelity). John Hancock Trust Company, Wells Fargo Bank, N.A., and Fidelity served as trustees of the Plan during 2018. Fidelity served as the trustee of the Plan during 2019. The Plan also invests in the common stock of the Company. These transactions qualified as party in interest transactions; however, they are exempt from the prohibited transactions rules under ERISA.
8. Income Tax Status
In 2014, the Plan received a determination letter from the IRS stating that the Plan is qualified under Section 401(a) of the IRC and, therefore, the related trust is exempt from taxation. The Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the IRC and, therefore, believes that the Plan continues to be qualified and the related trust is tax exempt. Accordingly, no provision for income taxes has been made in the accompanying statements. The Plan is no longer subject to income tax examinations for years prior to 2016.
9. Reconciliation of Financial Statements to the Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500:
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December 31
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2019
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2018
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Net assets available for benefits per the financial statements
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$
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594,946,867
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$
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496,519,868
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Contributions receivable
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(290,424)
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(1,286,004)
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Net assets available for benefits per the Form 5500
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$
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594,656,443
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$
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495,233,864
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The following is a reconciliation of the net increase in net assets available for benefits before transfers per the financial statements to net income per the Form 5500 for the year ended December 31, 2019:
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December 31, 2019
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Net increase in net assets available for benefits before transfers per the financial statements
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$
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87,478,787
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Change in contributions receivable
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995,580
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Net income per the Form 5500
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$
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88,474,367
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10. Subsequent Events
In connection with the Company's divestiture of its Performance Products and Solutions business segment (PP&S), certain employees who rendered services to PP&S as part of a transition services agreement ceased to be employees of the Company as of March 31, 2020, which constituted a partial plan termination. As a result, all employees who terminate for any reason during 2020 with a non-vested balance will become fully vested in their account.