LIFEPOINT HEALTH, INC. RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
Note 1.
Description of the Plan
General
The following description of the LifePoint
Health
, Inc. Retirement Plan (the “Plan”)
reflects the general conditions of participation as of December 31, 201
6
and 2015
. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
The Plan is a defined contribution plan covering
the majority of the
employees of
the subsidiaries of
LifePoint
Health
, Inc. (
the
“
Co
mpany
”)
,
other than
employees of certain subsidiaries that offer other retirement plans
,
who have completed 30 days
of s
ervice
,
and is
subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
The Plan includes an employee stock ownership plan (“ESOP”) component within the meaning of Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended (the “Code”). Prior to January 1, 2009, all shares available for allocation in accordance with the ESOP component had been allocated to participant accounts.
Contributions
Each participant may elect to contribute up to 50% of his or her
eligible
pre-tax compensation to the Plan (“Salary Deferral Contribution”). An automatic 2% Salary Deferral Contribution is applied to all participants who do not make a contrary election
, except for participants who are classified as
pro re nata
or per diem
. Participants who have attained age 50 before the close of the Plan year are eligible to make catch-up contributions
.
Participant contributions are further limited by certain provisions of the Code.
The Plan provides
for
discretionary contribution
s from the Company
in an amount determined by the Company’s management, in its sole discretion, as a percentage of the participants’ Salary Deferral Contributions in the form of matching contributions
(“Matching Contributions”)
or in an amount, if any, determined in the sole and absolute discretion of the Company’s management in the form of profit sharing contributions (“Profit Sharing Contributions”)
.
For the year
s
ended December 31,
201
6
and
201
5
, the Company made Matching Contributions of
$
24,
862,451
and
$
21,104,096
, respectively
.
The Company did not make any Profit Sharing Contributions during
201
6
or 201
5
.
An additional contribution by the Company in an amount determined by the Company
’s management
to ensure that the Plan satisfies certain nondiscrimination requirements of the Code may be allocated solely to the accounts of participants who are considered non-highly compensated employees and have elected to make Salary Deferral Contributions for the Plan year (“Non-elective Employer Contributions”). Alternatively, certain highly compensated employees may be refunded a portion of their Salary Deferral Contributions in order to comply with the same nondiscrimination requirements of the Code.
Participant Accounts
Each participant’s account is credited (charged) with his or her Salary Deferral Contribution, the Company’s contributions, Plan fees and
investment
earnings (losses). Allocations are based on a number of factors, as defined in the Plan document. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account. Contributions and allocations are subject to certain limitations under the Code. The Plan allows participants to diversify up to 100% of their allocated contributions of the Company’s stock made in accordance with the
ESOP
component of the Plan by investing in other securities available under the Plan. The Plan
generally
limits the percentage of an individual’s aggregate account that can be invested in the Company’s stock at 25%.
LIFEPOINT HEALTH, INC. RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
Payment of Benefits
Upon retirement, disability, death, or termination of employment, the total vested value of a participant’s account that exceeds $5,000 is distributed to the participant or his or her beneficiary, as applicable, in
a lump sum of
cash unless the participant or the beneficiary elects certain other forms of distribution available under the Plan. If the vested value of a participant’s account is less than $1,000, the total vested balance is distributed as an automatic lump sum payment in cash. For participant accounts greater than $1,000 but
not more
than $5,000, the vested value of the participant’s account may be rolled into an individual retirement account on behalf of the participant
or distributed to the participant or his or her beneficiary, as applicable, in cash
.
Additionally, a participant may request
certain in-service
withdrawal
s, including hardship withdrawals,
of all or a portion of
his or her
vested account balance at any time, subject to certain restrictions
and limitations,
as defined by the Plan
document
.
Notes Receivable from Participants
Each participant may borrow from his or her account a minimum of $1,000 up to a maximum amount equal to the lesser of $50,000 or one-half of the respective participant’s vested account balance. Loan terms range from six months to five years or up to ten years if the loan is used for the purchase of a primary residence. The loans are secured by the vested balance in the respective participant’s account and bear interest at a rate commensurate with local prevailing rates, ranging
from
3.25
% to
9.25
%
as of
December 31, 201
6
,
as determined by the P
lan
’s
administrator. Principal and interest are paid by the participant ratably through payroll deductions.
Vesting and Forfeitures
Participants are immediately and fully vested in their Salary Deferral Contributions, Non-elective Employer Contributions, rollover contributions and investment earnings (losses) arising from these contributions.
Participants are fully vested in
Matching Contributions
and Profit Sharing Contributions
after two years of service.
Participants’ interest
s
in their accounts become fully vested and nonforfeitable without regard to their credited years of service if they
retire
on or after age 65, incur a total and permanent disability or die while employed by the Company.
If a participant who is not fully vested terminates employment with the Company, the participant is entitled to the vested portion of
his or her
account. The non-vested portion is forfeited and is used to reduce future Company contributions, pay administrative expenses of the Plan or is reallocated to participants in the Plan, as defined in the Plan document.
During the year
s
ended
December 31, 201
6
and 201
5
, the Company utilized forfeitures of
$
454
,
354
and
$
1,290,107
, respectively,
to reduce the Company’s Matching Contributions
.
U
nused forfeitures
available for use
at
December 31, 201
6
and 201
5
were
$
102,009
and
$
46,313
, respectively
.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan document to discontinue its contributions at any time and to terminate
the Plan. In the event of Plan termination, participants will
become 100% vested
.
LIFEPOINT HEALTH, INC. RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
Note
2
.
Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared on the accrual basis of accounting in accordance with U
nited
S
tates
generally accepted accounting principles (“GAAP”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires Plan management to make estimates and assumptions that affect the reported amount of net assets available for benefits, changes therein and disclosures of contingent assets and liabilities. Actual results could differ from those estimates.
Valuation of Investments
The Plan’s investments are stated at fair value in accordance with
Accounting Standards Codification (“ASC”) 820-10, “
Fair Value Measurement
”
(“ASC 820-10”)
. The Plan’s investments are further discussed in Note 3.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant loans are reclassified as distributio
ns based upon the terms of the P
lan document.
Income Recognition
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Benefit Payments
Benefits are recorded when paid.
Administrative Expenses
The majority of a
dministrative expenses, including legal and participant accounting expenses and all expenses directly relating to the investments, are charged to and paid by the Plan
.
Recently Issued Accounting Standards
In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-7, “Fair Value Measurement: Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)” (“ASU 2015-7”). ASU 2015-7 exempts investments measured using the net asset value (“NAV”) practical expedient in ASC 820-10 from categorization within the fair value hierarchy. The
Company adopted the provisions of ASU 2015-7 effective January 1, 2016, which
impact
ed
its
disclosures only and
did
not have an impact on the Plan’s net assets available for benefits or changes therein.
LIFEPOINT HEALTH, INC. RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
In July 2015, the
FASB issued ASU
2015-12, “Plan Accounting” (“ASU 2015-12”). ASU 2015-12 amends authoritative guidance associated with plan accounting comprised of three parts. Parts I and III are not applicable to the Plan.
Part II eliminates the requirements to disclose individual investments that represent five percent or more of net assets available for benefits and the net appreciation or depreciation in fair value of investments by general type. Part II also simplifies the level of disaggregation of investments that are measured using fair value. Plans will continue to disaggregate investments that are measured using fair value by general type; however, plans are no longer required to also disaggregate investment by nature, characteristics and risks. Further, the disclosure of information about fair value measurements shall be provided by general type of plan asset.
The Company adopted the provisions of ASU 2015-12 effectiv
e January 1, 2016, which impacted
its disclosures only and did
not have an impact on the Plan’s net assets available for benefits or changes therein.
Note
3
.
Investments
at Fair Value
Effective May 18, 2015, the Plan’s trustee was changed from The Charles Schwab Trust Company to Wells Fargo Bank, N.A (the “Trustee”)
.
The Plan’s investments are held, and transactions are executed, by
the Trustee
. The Plan accounts for its investments in accordance with ASC 820-10. ASC 820-10 establishes a framework for measuring fair value and establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.
In addition, the
discretionary
trustee for the
Company’s common stock in
the Plan is Argent
Trust Company
.
The tiers are as follows:
Level 1 – defined as observable inputs such as quoted prices in active markets;
Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 – defined as observable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The following
provides
a description of the valuation methodologies used to value the Plan’s assets measured at fair value in accordance with ASC 820-10
and certain additional information
:
LifePoint
Health
, Inc. Common Stock
Fund
:
Valued
at the NAV of
shares
held in the Company’s
unitized
common stock fund
at year end
.
Mutual Funds
: Valued at the
NAV
of shares held by the Plan at year end in an active market.
Self-directed Brokerage Accounts
: Valued at the last reported sales prices
of the underlying investments
on the last business day of the Plan year reported by the active markets in which the individual underlying investments are traded
, excluding investments in money market funds which are described further below
.
Money Market Fund
: Valued at quoted prices in markets that are not active by a combination of inputs, including but not limited to dealer quotes who are market makers in the underlying funds and other directly and indirectly observable inputs.
LIFEPOINT HEALTH, INC. RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
Collective Trusts
: Valued at the
NAV
as the practical expedient
, inclusive of
net investment gains or losses
, based on information provided by the Trustee and using the audited financial statements of the collective trust
s
at year-end.
The
investment objectives of the funds included in this class of investments are to approximate as closely as practicable, before expenses, the performance of certain widely observed indices over the long term, while providing participants the ability to purchase and redeem units at will. Generally, neither of the individual investment funds that comprise this class of investment contain redemption restrictions that would prevent or considerably delay a participant from redeeming his or her investment at any point of participation in the fund. As of
December 31, 201
6
and 201
5
, there were
no unfunded obligations with respect to any of the funds in this investment category.
The fair values,
within the fair value hierarchy in accordance with ASC 820-10, of the Plan’s investments at December 31, 201
6
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
LifePoint Health, Inc. Common Stock Fund
|
$
|
64,346,575
|
|
$
|
-
|
|
$
|
-
|
|
$
|
64,346,575
|
Mutual Funds
|
|
125,133,854
|
|
|
-
|
|
|
-
|
|
|
125,133,854
|
Money Market Fund
|
|
-
|
|
|
57,660,267
|
|
|
-
|
|
|
57,660,267
|
Self-directed Brokerage Accounts
|
|
14,171,731
|
|
|
-
|
|
|
-
|
|
|
14,171,731
|
Total investments in fair value hierarchy
|
$
|
203,652,160
|
|
$
|
57,660,267
|
|
$
|
-
|
|
|
261,312,427
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Trusts
|
|
|
|
|
|
|
|
|
|
|
641,315,088
|
Total investments at fair value
|
|
|
|
|
|
|
|
|
|
$
|
902,627,515
|
The fair values, within the fair value hierarchy in accordance with ASC 820-10, of the Plan’s
investments
at December 31, 201
5
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
LifePoint Health, Inc. Common Stock Fund
|
$
|
90,732,607
|
|
$
|
-
|
|
$
|
-
|
|
$
|
90,732,607
|
Mutual Funds
|
|
108,294,530
|
|
|
-
|
|
|
-
|
|
|
108,294,530
|
Money Market Fund
|
|
-
|
|
|
51,470,748
|
|
|
-
|
|
|
51,470,748
|
Self-directed Brokerage Accounts
|
|
12,590,176
|
|
|
7,270,325
|
|
|
-
|
|
|
19,860,501
|
Total investments in fair value hierarchy
|
$
|
211,617,313
|
|
$
|
58,741,073
|
|
$
|
-
|
|
|
270,358,386
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Trusts
|
|
|
|
|
|
|
|
|
|
|
518,270,421
|
Total investments at fair value
|
|
|
|
|
|
|
|
|
|
$
|
788,628,807
|
Certain investments that are measured at fair value using the NAV as the practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in the tables above are intended to permit a reconciliation of the fair value hierarchy amounts presented in the Statements of Net Assets Available for Benefits.
There have been no changes to the valuation methodologies used to value the Plan’s assets during 201
6
.
Additionally, alt
hough the Plan believes its valuation metho
ds
are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.
LIFEPOINT HEALTH, INC. RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
Note 4. Asset
s
Transfer
red to Other Plan
In connection with the Company’s sale of certain subsidiaries
to an unrelated third party
, effective January 1, 2015, the Plan transferred
assets with a fair market value of
$10,
550
,9
27
to another plan. This ac
tivity is presented separately
under the caption “Asset
s transferred to other plan
s
” i
n the accompanying statement of changes in net assets
available for benefits for the year ended December 31, 2015.
Note
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.
Note
6
. Income Tax
es
The Plan has received a
favorable
determination letter from the Internal Revenue Service (
“
IRS
”
), dated
June 17, 2015
, stating that the Plan is qualified under Section 401(a) of the Code and that the related trust is exempt from taxation.
T
he Plan is required to operate in conformity with the Code to maintain its qualification.
The Plan has been amended since receiving the determination letter. The Plan administrator believes that the Plan, as amended,
has been designed and
is being operated in compliance with the applicable requirements of the Code.
GAAP requires the Plan’s management to evaluate tax positions taken by the Plan and recognize a tax liability or asset if the Plan has taken an uncertain position that more likely than not would not be sustained by the applicable taxing authorities upon examination. The Plan’s administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 201
6
, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or asset or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions
.
Note
7
. Party-In-Interest Transactions
The Plan holds investments in the form of
notes receivable from participants
and in shares of
LifePoint
Health
, Inc. Common Stock
and
pays administrative expenses to the Plan’s trustee and recordkeeper. All of these transactions qualify as
party-in-interest transactio
ns that are permissible under specific exemptions included in ERISA and the Code.
T
he Plan paid
$
1,
71
7
,9
74
and
$
1,718,858
in administrative expenses to the Plan’s trustee and recordkeeper during the years ended
December 31, 201
6
and 201
5
, respectively.
Additionally, the Company provide
d
the Plan with certain management and administrative services for which no fees
were
charged.
LIFEPOINT HEALTH, INC. RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2016 and 2015
Note
8
. Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500 at
December 31, 201
6
and 201
5
:
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Net assets available for benefits per the financial statements
|
|
$
|
936,014,459
|
|
$
|
810,223,830
|
Less: Deemed distributions of notes receivable from participants
|
|
|
(514,318)
|
|
|
(448,030)
|
Net assets available for benefits per the Form 5500
|
|
$
|
935,500,141
|
|
$
|
809,775,800
|
The following is a reconciliation of the change in net assets available for benefits per the financial statements to the Form 5500 for the years ended
December 31, 201
6
and 201
5
:
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Net increase in net assets available for benefits per the financial statements
|
|
$
|
125,790,629
|
|
$
|
66,639,195
|
Add: Deemed distributions of notes receivable from participants at beginning of year
|
|
|
448,030
|
|
|
517,253
|
Less: Deemed distributions of notes receivable from participants at end of year
|
|
|
(514,318)
|
|
|
(448,030)
|
Net increase in net assets available for benefits per the Form 5500
|
|
$
|
125,724,341
|
|
$
|
66,708,418
|
Note
9
. Subsequent Event
Effective December 31, 2016,
the
retirement plans of
two of
the Company’s
subsidiaries
merged with
the Plan, and subsequently, on
January 2, 2017, total assets
of
approximately $100 million
transferred
into the
Plan
.