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 all employees of PolyOne Corporation (the Company or Plan Administrator) and its subsidiaries, other than 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 50% 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, 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. For each payroll period in 2016, 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.
Forfeiture balances result from participant terminations within the Plan and represent the related unvested balance. The forfeiture account in the Plan totaled
$167,008
and
$222,503
at
December 31, 2016
and
2015
, respectively. The balance in this account will be used to fund future Company contributions or Plan expenses. Forfeitures used to offset Company contributions totaled
$338,691
during the period ended
December 31, 2016
.
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 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 of John Hancock Trust Company (the Trustee)
plus 1%. Payments on notes receivable are made through payroll deductions and must be repaid within five years (personal loans) or five to fifteen years (primary residence loans).
Plan Withdrawals and Distributions
Active participants may make hardship withdrawals from their salary deferral and rollover 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
The Plan has entered into agreements with certain service providers for the Plan to receive certain fee rebates which are generally used to pay administrative expenses of the Plan. Participants are charged investment management fees, which are netted with the returns of the respective investment.
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). Securities traded on a national securities exchange are valued at the last reported sales price on the last business
day of the Plan year. See Note 4,
Fair Value Measurements,
for further discussion and disclosures related to fair value measurements.
The Anchor Account is a pooled separate account made available to 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 contract value for benefit payments, loans, or transfers to other investment options offered to the participant by the Plan.
3. Self-Directed Brokerage Accounts
In addition to the standard investment options of the Plan, brokerage accounts are available to Plan participants through TD Ameritrade Retirement Services, and are comprised of various investments made at the sole direction of the Plan participants. Interest and dividend income of
$323,291
and net realized and unrealized gain of
$845,507
associated with the brokerage accounts are reflected within the Statement of Changes in Net Assets Available for Benefits for the year ended
December 31, 2016
.
4. Fair Value Measurements
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 Standard Codification (ASC) 820,
Fair Value Measurements and Disclosures
, 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 liability. Level 3 inputs include the Plan's 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.
The Plan’s investments are stated at fair value. Shares of common stock and mutual funds are valued based on quoted active market prices and are classified within Level 1 of the valuation hierarchy. The Plan holds interests in a Stable Value Fund, which consists of an investment in the Anchor Account, which is not traded in an active market, and is valued at the net asset value per share of the fund.
The fair values of the Plan's investments at
December 31, 2016
and
2015
, by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
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Assets at Fair Value as of December 31, 2016
|
|
|
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Total
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|
Quoted Prices
(Level 1)
|
|
Mutual funds
|
|
$
|
307,749,747
|
|
|
$
|
307,749,747
|
|
|
Common stock - domestic
|
|
57,381,846
|
|
|
57,381,846
|
|
|
Short-term investments
|
|
1,907,263
|
|
|
1,907,263
|
|
|
Self-directed brokerage accounts
|
|
20,285,623
|
|
|
20,285,623
|
|
|
Total
|
|
$
|
387,324,479
|
|
|
$
|
387,324,479
|
|
|
|
|
|
|
|
|
Investments measured at net asset value:
|
|
|
|
|
|
Pooled separate account - Stable value fund
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|
86,111,252
|
|
|
|
|
Total investments, at fair value
|
|
$
|
473,435,731
|
|
|
|
|
|
|
|
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|
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|
|
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Assets at Fair Value as of December 31, 2015
|
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|
|
Total
|
|
Quoted Prices
(Level 1)
|
|
Mutual funds
|
|
$
|
300,030,231
|
|
|
$
|
300,030,231
|
|
|
Common stock - domestic
|
|
64,198,394
|
|
|
64,198,394
|
|
|
Short-term investments
|
|
2,051,693
|
|
|
2,051,693
|
|
|
Self-directed brokerage accounts
|
|
18,879,421
|
|
|
18,879,421
|
|
|
Total
|
|
$
|
385,159,739
|
|
|
$
|
385,159,739
|
|
|
|
|
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Investments measured at net asset value:
|
|
|
|
|
|
Pooled separate account - Stable value fund
|
|
80,459,335
|
|
|
|
|
Total investments, at fair value
|
|
$
|
465,619,074
|
|
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The Plan's policy is to recognize transfers in and out of the fair value hierarchy as of the beginning of the period for which the transfer occurred. There were no significant transfers between levels of the fair value hierarchy during
2016
and
2015
.
Investments in Entities that Calculate Net Asset Value Per Share
The New York Life Insurance Company Anchor Account (the Stable Value Fund) is invested in high-quality fixed income securities. It seeks to provide a low-risk stable investment, offering competitive yields and limited volatility, with guarantee of principal and accumulated interest. There were no unfunded commitments related to the Anchor Account.
Participants 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. Further, the Plan is required to provide a one-year redemption notice to liquidate its entire share in the fund.
5. 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.
6. Related Party Transactions
The Plan holds units of a pooled separate account fund managed by the Trustee. The Plan also invests in the common stock of the Company. These transactions qualify as party-in-interest transactions; however, they are exempt from the prohibited transactions rules under ERISA.
7. Income Tax Status
In 2014, the Plan received a determination letter from the Internal Revenue Service stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code and, therefore, the related trust is exempt from taxation. The Plan is required to operate in conformity with the Code to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the Code 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 2013.
8. 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,
|
|
|
2016
|
|
2015
|
|
Net assets available for benefits per the financial statements
|
$
|
485,365,565
|
|
|
$
|
477,207,672
|
|
|
Contributions receivable
|
(988,802
|
)
|
|
(974,327
|
)
|
|
Net assets available for benefits per the Form 5500
|
$
|
484,376,763
|
|
|
$
|
476,233,345
|
|
The following is a reconciliation of the increase in net assets available for benefits per the financial statements to net income per Form 5500 for the year ended
December 31, 2016
:
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December 31, 2016
|
|
Net increase before transfers in net assets per the financial statements
|
5,611,666
|
|
|
Change in contributions receivable
|
(14,475
|
)
|
|
Net income per Form 5500
|
$
|
5,597,191
|
|