UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
(Mark One)
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[X]
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ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2016
OR
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[ ]
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TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to ___
Commission File Number 1-08323
A.
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Full title of the plan and the address of the plan, if different from that of the issuer named below:
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Cigna 401(k) Plan
B.
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Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
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Cigna Corporation
900 Cottage Grove Road
Bloomfield, Connecticut 06002
Required Information
Financial statements and schedules for the Cigna 401(k) Plan, prepared in accordance with the financial reporting requirements of the Employee Retirement Income Security Act of 1974, are contained in this Annual Report on Form 11-K.
Exhibits
Exhibits are listed in the Index to Exhibits.
CIGNA 401(k) PLAN
Financial Statements and
Supplemental Schedule
December 31, 2016 and 2015
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CIGNA 401(k) PLAN
TABLE OF CONTENTS
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Page
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Report of Independent Registered Public Accounting Firm
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1
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Financial Statements
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Statements of Net Assets Available for Benefits as of December 31, 2016 and 2015
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2
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Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 2016
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3
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Notes to the Financial Statements
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4
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Supplemental Schedule*
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Form 5500 Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2016
*Other supplemental schedules required by Section
2520.103‑10 of
the Department of
Labor's Rules and Regulations for Reporting and Disclosure under ERISA have been
omitted because they are not applicable
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16
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Report of Independent Registered Public Accounting Firm
To
the Administrator of Cigna 401(k) Plan
In our opinion, the accompanying statements of net assets available for benefits and the related statement of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of Cigna 401(k) Plan (the "Plan") as of December 31, 2016 and 2015, and the changes in net assets available for benefits for the year ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion
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The supplemental Schedule of Assets (Held at End of Year) as of December 31, 2016 has been subjected to audit procedures performed in conjunction with the audit of the Plan's financial statements. The supplemental schedule is the responsibility of the Plan's management. Our audit procedures included determining whether the supplemental schedule reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In forming our opinion on the supplemental schedule, we evaluated whether the supplemental schedule, including its form and content, is presented in conformity with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the Schedule of Assets (Held at End of Year) is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
June 22, 2017
CIGNA 401(k) PLAN
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STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
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As of
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December 31,
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2016
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2015
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(In thousands)
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Assets
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Investments, at fair value (See Note 4)
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$
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3,024,898
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$
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2,823,060
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Investments, at contract value (See Note 5)
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1,932,851
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1,810,471
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Notes receivable
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88,482
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94,193
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Employer contributions receivable
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6,366
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5,455
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Net assets available for benefits
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$
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5,052,597
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$
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4,733,179
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The accompanying Notes to the Financial Statements are an integral part of these statements.
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CIGNA 401(k) PLAN
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STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
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For the Year Ended
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December 31,
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2016
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(In thousands)
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Investment Income
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Net appreciation in fair value of investments
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$
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118,617
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Interest
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58,751
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Dividends
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221
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Net investment income
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177,589
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Interest income on notes receivable from participants
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2,706
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Contributions
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Employee contributions
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211,916
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Employer contributions
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112,039
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Rollover contributions
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43,141
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Total contributions
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367,096
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Deductions
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Benefits paid to participants
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(253,962)
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Plan expenses
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(2,128)
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Total deductions
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(256,090)
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Net increase
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291,301
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Transfers from other plans
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28,117
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Net assets available for benefits
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Beginning of year
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4,733,179
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End of year
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$
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5,052,597
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The accompanying Notes to the Financial Statements are an integral part of these statements.
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CIGNA 401(k) PLAN
NOTES TO THE FINANCIAL STATEMENTS
Note 1 – Description of the Plan
The following description of the Cigna 401(k) Plan (the "Plan") provides general information only. A more complete explanation of the features and benefits available under the Plan, a defined contribution plan, is contained in the Plan's Summary Plan Description and Prospectus. Generally, all U.S.-based employees of Cigna Corporation ("Cigna", the "Company" or "Plan Sponsor") and its participating subsidiaries are eligible to participate in the Plan. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). As of December 31, 2016 and 2015 and for the year ended December 31, 2016
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Prudential Bank & Trust, FSB, was the Trustee for the Plan.
Plan Administration
The Cigna Corporation Retirement Plan Committee, which is comprised of three members of Cigna's management, is the primary Plan fiduciary. This committee delegates responsibility for administration of the Plan to the Plan Administrator, a Cigna employee, and responsibility for the Plan's financial management to Cigna's Chief Financial Officer (CFO). The Plan Administrator and CFO have arranged with Prudential Retirement Insurance and Annuity Company (PRIAC) to perform the primary administrative, recordkeeping and asset management functions on behalf of the Plan. The Retirement Plan Committee is responsible for, among other things, selecting and monitoring the Plan's investments.
Investments
The Plan's investment options include a fixed income fund, which is supported by both traditional and synthetic fully benefit-responsive investment contracts (see Note 5); Cigna common stock; and pooled separate accounts that invest in a variety of underlying funds. Participants may transfer assets among the investment options, subject to certain restrictions. For example, transfers involving assets invested in Cigna common stock may be subject to restrictions imposed under Cigna Corporation's Policy on Securities Transactions and Insider Trading. See Notes 4 and 5 for additional information regarding the Plan's investment options.
The Plan uses an age-appropriate Moderate target portfolio under Prudential Retirement's GoalMaker® asset allocation program (GoalMaker) as its default investment option. GoalMaker meets the requirements to be a Qualified Default Investment Alternative (QDIA) under federal law. Participants are invested in the QDIA if they have not made their own investment allocation election or may be invested due to a plan merger if they do not elect how their old plan account should be invested after the plan merger occurs
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Employee Contributions
The Plan permits employees to make pre-tax and Roth contributions (regular and catch-up). The contribution rate maximum is 80% of a participant's eligible pay. This is a total limit that applies to all employee contributions. As a result of the Plan's use of a "qualified automatic contribution arrangement" (QACA) safe harbor, highly-compensated employees are not subject to a separate contribution rate limit.
The Plan uses an automatic contribution rate increase program called Contribution Accelerator. If an eligible participant's pre-tax contribution rate is at least 1% but less than 8%, the contribution rate is automatically increased by 1% at the beginning of each year until it reaches 8% (7% in 2015). Eligible participants can opt out of Contribution Accelerator or change the date when the increase would go into effect each year.
CIGNA 401(k) PLAN
NOTES TO THE FINANCIAL STATEMENTS
All employees, however, are still subject to the annual dollar limit set by the Internal Revenue Service (IRS). Employee contributions may be invested in any combination of investment options offered by the Plan subject to certain other Internal Revenue Code (IRC) limitations and any restrictions imposed under Cigna Corporation's Policy on Securities Transactions and Insider Trading.
Employer Contributions
All employees are eligible for employer-matching contributions as soon as they join the Plan. Regular matching contributions are made at the same time employee contributions are made, typically bi-weekly, but no less frequently than monthly.
The Plan also provides a "true-up" matching contribution after the close of each Plan year. The true-up match is an added employer contribution, if needed to make the year's total matching contributions equal to what they would have been on a "look-back" if all employee match eligible contributions were made as of the end of the year and matching contributions were based on the participant's total annual eligible earnings as of the end of the year. The true-up match provides otherwise missed regular matching contributions for eligible participants caused by changes in an employee's contributions rates during the year.
All types of matching contributions (regular and true-up) are collectively referred to as "employer contributions."
The maximum effective regular matching contribution is equal to 4.5% of a participant's eligible earnings. The actual match rate is equal to: 100% of the participant's first 3% of pay contributed (a 3% of pay match), plus 50% of the participant's next 3% of pay contributed (a 1.5% of pay match). The company match rate applies to pre-tax, Roth contributions and catch-up contributions – to the extent those contributions are part of an employee's first 6% of pay contributed.
Rollover Contributions
The Plan may accept rollover contributions. Rollover contributions represent distributions received from other "eligible retirement plans," as defined in IRC section 401(a)(31)(E). Distributions from other plans are subject to certain conditions to be eligible for rollover into the Plan.
Participant Accounts
Each participant's account is credited with the participant's contribution, the employer contribution and investment earnings, net of expenses. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account balance.
Vesting
Employee contributions and related investment earnings are fully vested at all times.
Employer contributions made after 2009 and related investment earnings become fully vested upon completion of two years of service for employees hired after December 31, 2009. For employees hired before January 1, 2010, such employer contributions vest 20% after one year of service, and 100% after two years of service. Employer contributions made before January 1, 2010 continue to vest gradually at the rate of 20% for each year of vesting service and are fully vested after five years. Employer contributions made at any time and related investment earnings become fully vested earlier when an employee reaches age 65; dies; becomes totally and permanently disabled; or continues to be employed by a participating Cigna company that is sold and does not maintain a successor plan. Early vesting also would occur if Cigna discontinues matching contributions or terminates the Plan.
CIGNA 401(k) PLAN
NOTES TO THE FINANCIAL STATEMENTS
Participants earn a year of vesting service if they have at least 1,000 hours of service during the calendar year.
Forfeitures
A participant who is not fully vested forfeits any unvested employer contributions and related investment earnings upon termination of employment. Forfeited amounts are restored if a participant returns to Cigna before incurring five consecutive one-year breaks in service. Otherwise, forfeited amounts are used to reduce future employer contributions. Effective January 1, 2016, the Plan was amended to provide that forfeitures may be used to offset certain plan expenses (other than routine administrative expenses) as determined by the Plan Administrator as well as reduce future employer contributions. Employer contributions were reduced by forfeited amounts of approximately $1.7 million in 2016
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Notes Receivable
The notes receivable amount represents the unpaid principal balance on unpaid loans. The Plan permits participants to borrow a portion of their vested Plan account, subject to certain limitations, including restriction of post-2009 Cigna employer contributions, at an annual rate of interest with a specified repayment period. The minimum amount that may be borrowed is $1,000; the maximum total loan amount is the lesser of $50,000 or 50% of the participant's vested account balance. A participant may have no more than two outstanding loans. Loan terms range from 12 to 60 months or up to 120 months if the loan is used to buy or build a participant's primary residence. The annual interest rate for a Plan loan is 2% plus the yield of actively traded U.S. Treasury securities, adjusted by the U.S. Treasury Department to 3-year or 7-year constant maturities. The maximum Plan loan interest rate is the bank prime loan rate that is in effect on the same date that the applicable Treasury rate is determined.
Loan interest rates remain fixed during the term of the loan. The loan is secured by the participant's vested account balance. PRIAC charges the participant a $50 fee to process Plan loans.
Payment of Benefits
Participants may withdraw funds subject to the requirements of the Plan. Upon termination of employment for any reason, a participant may elect to receive either a lump-sum amount equal to the value of the participant's vested account balance, monthly installments over a period of years, an annuity, or a combination of these forms of payment. If the participant's vested account balance is more than $1,000 but not more than $5,000 and the participant does not agree within 80 days to accept a lump sum, the amount will automatically be rolled over to an Individual Retirement Account or Individual Retirement Annuity (IRA) sponsored by a Prudential Retirement affiliate. The IRA will be invested in an investment product designed to preserve principal and provide a reasonable rate of return and liquidity. All related expenses will be charged to the IRA. If a Plan participant with a balance greater than $5,000 terminates and does not withdraw funds, the account becomes inactive. Inactive plan participants can request withdrawals at any time. Also, when a participant reaches age 70 ½, required minimum distributions must be made in accordance with IRS formulas. To the extent a participant's account is invested in Cigna common stock, the participant may elect to receive such amounts in shares.
CIGNA 401(k) PLAN
NOTES TO THE FINANCIAL STATEMENTS
Plan Expenses
Administrative expenses and investment management fees are reported separately, and participant accounts are directly charged, on a quarterly basis, with the same administrative fee regardless of their investment options. For the year ended December 31, 2016, the annualized fee was 0.04% of the participant's account balance up to a maximum of $200.
Brokers' commissions resulting from buying or selling Cigna common stock are paid from the participants' account balances and are reflected as a reduction of investment income in these financial statements. Fees related to pooled separate accounts and underlying fund investments are netted against investment returns of each pooled separate account. Other costs associated with the operation of the Plan, including trustee and legal fees, are paid by Cigna.
Plan Termination
Cigna intends to continue the Plan indefinitely but reserves the right to discontinue employer contributions or terminate the Plan in whole or in part at any time prior to that. If contributions are discontinued or the Plan is terminated, affected participants will become fully vested. Upon Plan termination, net assets of the Plan will be distributed in the manner Cigna elects in accordance with the Plan document and in accordance with ERISA and its related regulations.
Note 2 - Significant Accounting Policies
Basis of Presentation
The financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (GAAP). Amounts recorded in the financial statements reflect management's estimates and assumptions that affect the reported amount of assets, liabilities, and changes therein, and disclosure of contingent assets and liabilities at the date of the financial statements. Significant estimates are discussed throughout these Notes; however, actual results could differ from those estimates. In preparing these financial statements, management has evaluated events that occurred between December 31, 2016 and the date that the financial statements were issued, June 22, 2017 and determined that no additional disclosures were required.
Valuation of Investments and Income Recognition
Except for the fully benefit-responsive benefit investment contracts, plan investments are reported at fair value. Fair value is 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. The fair value of Cigna common stock is based upon its quoted market price. Fair value of pooled separate accounts is measured by the net unit value, which is based on the fair value of the underlying assets of the account.
Purchases and sales of securities are recorded on a trade-date basis. Interest is recognized when earned. Dividends are recognized on the ex-dividend date. Net appreciation or depreciation includes realized gains and losses on investments that were both purchased and sold during the period as well as unrealized appreciation or depreciation of the investments held at year end.
CIGNA 401(k) PLAN
NOTES TO THE FINANCIAL STATEMENTS
Payment of Benefits
Benefits are recorded when paid.
Recent Accounting Pronouncements
In May 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-07, Fair Value Measurement (Topic 820) Disclosures for Investments in Certain Entities that Calculate Net Asset Value (NAV) per Share (or Its Equivalent), which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the NAV per share practical expedient. The ASU is effective for public entities for fiscal years beginning after December 15, 2015, with early adoption permitted. Management elected to early adopt ASU 2015-07 as of December 31, 2015 and has determined based on the expanded definition of Readily Determinable Fair Value, (RDFV) per ASU 2015-10, Technical Corrections and Improvements, that NAV of the pooled separate accounts does not qualify as a practical expedient and such investments should continue to be included in the fair value hierarchy. Adoption and application of the Update therefore had no effect on the Plan's financial statements or disclosures.
In July 2015, the FASB issued ASU 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient. Part I eliminates the requirements to measure the fair value of fully benefit-responsive investment contracts and provide certain disclosures. Contract value is the only required measure for fully benefit-responsive investment contracts. Part II eliminates the requirements to disclose individual investments that represent 5 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 investments by nature, characteristics and risks. Further, the disclosure of information about fair value measurements shall be provided by general type of plan asset. Part III is not applicable to the Plan. The ASU is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. Parts I and II are to be applied retrospectively. Management elected to early adopt Parts I and II as of December 31, 2015, via retrospective application.
Note 3 – Termination of Merger Agreement
On May 12, 2017, Cigna announced that the merger agreement between the Company and Anthem, Inc. has been terminated. Thus, Cigna common stock currently remains an available investment option within the Plan, subject to the Retirement Plan Committee's continued oversight.
CIGNA 401(k) PLAN
NOTES TO THE FINANCIAL STATEMENTS
Note 4 - Fair Value Measurements
The Plan carries financial instruments, except the fully benefit-responsive investment contracts and notes receivable, at fair value in the financial statements. Fair value is defined as the price at which an asset could be exchanged in an orderly transaction between market participants at the balance sheet date.
Fair values are based on quoted market prices when available. When market prices are not available, fair value is generally estimated using discounted cash flow analyses, incorporating current market inputs for similar financial instruments with comparable terms and credit quality. In instances where there is little or no market activity for the same or similar instruments, fair value is estimated using methods, models and assumptions that the Plan Sponsor believes a hypothetical market participant would use to determine a current transaction price. These valuation techniques involve some level of estimation and judgment by the Plan Sponsor, which becomes significant with increasingly complex instruments or pricing models.
The Plan's financial assets carried at fair value have been classified based upon a hierarchy defined by GAAP. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets (Level 1) and the lowest ranking to fair values determined using methodologies and models with significant unobservable inputs (Level 3). An asset's classification is based on the lowest level input that is significant to its measurement. For example, a financial asset carried at fair value would be classified in Level 3 if unobservable inputs were significant to the instrument's fair value, even though the measurement may be derived using inputs that are both observable (Levels 1 and 2) and unobservable (Level 3).
CIGNA 401(k) PLAN
NOTES TO THE FINANCIAL STATEMENTS
Financial Assets Carried at Fair Value
The following table provides information as of December 31, 2016 and 2015 about the Plan's financial assets carried at fair value on a recurring basis.
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2016
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Quoted Prices
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Significant
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in Active
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Other
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Markets for
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Observable
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Identical Assets
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Inputs
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(In thousands)
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(Level 1)
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(Level 2)
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Total
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Assets at fair value:
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Common stock
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$
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711,170
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$
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-
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$
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711,170
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Pooled separate accounts:
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Fixed maturities
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-
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107,223
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107,223
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Equity securities
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-
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2,206,505
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2,206,505
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Total assets at fair value
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$
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711,170
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$
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2,313,728
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$
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3,024,898
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2015
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Quoted Prices
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Significant
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in Active
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Other
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Markets for
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Observable
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Identical Assets
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Inputs
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(In thousands)
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(Level 1)
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(Level 2)
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Total
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Assets at fair value:
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Common stock
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$
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813,532
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$
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-
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$
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813,532
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Pooled separate accounts:
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Fixed maturities
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-
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78,202
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78,202
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Equity securities
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-
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1,931,326
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1,931,326
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Total assets at fair value
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$
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813,532
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$
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2,009,528
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$
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2,823,060
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Level 1 Financial Assets
Inputs include unadjusted quoted prices for identical assets in active markets accessible at the measurement date. Active markets provide pricing data for trades occurring at least weekly and include exchanges and dealer markets.
Level 1 assets consist of shares of Cigna common stock valued at the closing price reported on the active markets on which Cigna common stock is traded.
Level 2 Financial Assets
Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads and yield curves. An instrument is classified in Level 2 if the Plan Sponsor determines that unobservable inputs are insignificant.
Level 2 assets consist of investments in pooled separate accounts of PRIAC, investing in fixed income and equity security mutual funds. These investments are priced daily using the unadjusted NAV as of the reporting date, which is the basis for current transactions. As these transactions occur directly with PRIAC and not on active markets, they are less observable and classified in Level 2.
There have been no transfers between Level 1 and Level 2 assets for the years ended December 31, 2016 and 2015.
CIGNA 401(k) PLAN
NOTES TO THE FINANCIAL STATEMENTS
Note 5 – Financial Assets Carried at Contract Value
The Plan's Fixed Income Fund is supported by four separate fully benefit-responsive investment contracts, including a traditional investment contract and three synthetic investment contracts. The Fixed Income Fund is a "fund of funds", and blends the crediting rates of the individual investment contracts to create a single melded crediting rate for the Fixed Income Fund. The melded rate approximates the rates of the supporting investment contracts and is utilized for Plan accounting purposes only. While PRIAC does not guarantee, support or otherwise back the melded book value, participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at their melded book value.
The Plan transacts with each of the four separate contract issuers at contract value. These contracts meet the fully benefit-responsive investment contract criteria and therefore are reported at their contract value in the statements of net assets available for benefits. Contract value is the relevant measure for fully benefit-responsive investment contracts because this is the amount received by the Plan if participants were to initiate permitted transactions. Contract value represents contributions made under each contract, plus earnings, less withdrawals, and administrative expenses.
The following represents the disaggregation of contract value between types of investment contracts held by the Plan.
|
|
As of December 31,
|
(In thousands)
|
2016
|
|
2015
|
Financial assets at contract value:
|
|
|
|
|
|
Traditional investment contract
|
$
|
1,455,689
|
|
$
|
1,810,471
|
Synthetic investment contracts
|
|
477,162
|
|
|
-
|
Total
|
$
|
1,932,851
|
|
$
|
1,810,471
|
CIGNA 401(k) PLAN
NOTES TO THE FINANCIAL STATEMENTS
The key difference between a synthetic investment contract and a traditional investment contract is that the Plan owns the underlying assets of the synthetic investment contract. A synthetic investment contract includes a wrapper contract, which is an agreement for the wrap issuer insurance company, to make payments to the Plan in certain circumstances. The wrapper contract typically includes certain conditions and limitations on the underlying assets owned by the Plan. With traditional investment contracts, the Plan owns only the contract itself and there are no reserves against contract value for the credit risk of the contract issuer. Prior to August 1, 2016, the Fixed Income Fund was solely supported by the full faith and credit of PRIAC for which PRIAC utilized the funds to purchase investments that were held in their general account.
Synthetic and traditional investment contracts are designed to accrue interest based on crediting rates established by the contract issuers. The synthetic investment contracts held by the Plan include three wrapper contracts with, the Prudential Insurance Company of America (PICA), Voya Retirement Insurance and Annuity Company (VRIAC), and Massachusetts Mutual Life Insurance Company (MassMutual), each of which provide a guarantee that their crediting rate will not fall below 0 percent. Assets supporting these contracts are comprised of diversified fixed income securities. Cash flow volatility (for example, timing of benefit payments) as well as asset underperformance can be passed through to the Plan through adjustments to future contract crediting rates. Crediting rates are reviewed not less than annually for resetting, and any adjustments can then be passed through to participants, which would generally be performed through updating of the crediting rate for the Fixed Income Fund in order to bring the melded book value of the participants in line with the Plan's cumulative contract value on the four underlying fully benefit-responsive investment contracts.
The traditional investment contract held by the Plan is a guaranteed investment contract with PRIAC. The contract issuer is contractually obligated to repay the principal and interest at a specified interest rate that is guaranteed to the Plan. The crediting rate is based on a formula established by the contract issuer but may not be less than 0 percent and is reviewed not less than annually for resetting.
The Plan's ability to receive amounts due in accordance with fully benefit-responsive investment contracts is dependent on the third-party issuer's ability to meet its financial obligations. The issuer's ability to meet its contractual obligations may be affected by future economic and regulatory developments.
Certain events might limit the ability of the Plan to transact at contract value with the contract issuer. These events may be different under each contract. Examples of such events include the following:
|
1.
|
The Plan's failure to qualify under Section 401(a) of the Internal Revenue Code or the failure of the trust to be tax-exempt under Section 501(a) of the Internal Revenue Code;
|
|
2.
|
Premature termination of the contracts;
|
|
3.
|
Plan termination or merger;
|
|
4.
|
Changes to the Plan's prohibition on competing investment options;
|
|
5.
|
Bankruptcy of the plan sponsor or other plan sponsor events (for example, divestitures or spinoffs of a subsidiary) that significantly affect the Plan's normal operations;
|
|
6.
|
Bankruptcy of PRIAC, the contract issuer to the traditional investment contract.
|
Note that if these certain events were to occur, the Plan may not be able to transact at contract value with the contract issuers and may elect to reflect any difference between market value and contract value by adjusting participants' melded book value in the Fixed Income Fund. It is possible that under such events participants' melded book value may decrease, however, the Plan Sponsor does not believe it is probable that such events will occur.
CIGNA 401(k) PLAN
NOTES TO THE FINANCIAL STATEMENTS
Note 6 - Tax Status
The Plan's design and current operations are consistent with all IRS requirements for tax exemption. The Plan Sponsor recently applied for a favorable determination letter from the IRS in January 2017 and is currently awaiting IRS approval and receipt of a new determination letter. The Plan's most recent determination letter is dated July 24, 2012. Management believes that no transaction, plan amendment or other action has been undertaken since the issuance of the most recent IRS determination which would compromise the Plan's exempt status. The Plan may be subject to IRS audit but there is no such audit currently in progress, nor has there been one in the recent past
.
Tax years that remain open and subject to an audit based on IRS general procedures are 2013 to 2016.
Accounting principles generally accepted in the United States of America require 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 upon examination by the Internal Revenue Service. As of December 31, 2016 and 2015, there were no uncertain positions taken that had an effect on the Plan financial statements or that required disclosure.
Note 7 - Related Party Transactions and Party in Interest Transactions
The Plan invests in Cigna common stock. During the year ended December 31, 2016, the Plan purchased shares of Cigna common stock for approximately $26.6 million and sold shares of Cigna common stock for approximately $57.0 million, and experienced net depreciation of approximately $71.9 million.
The Plan also invests in pooled separate accounts and fully benefit-responsive investment contracts, which are administered by PRIAC, the Plan's third party administrator and record-keeper. Activity reported by PRIAC for these investments qualify as party in interest transactions. Fees incurred by the Plan for administrative services are included in Plan expenses and totaled $1.7 million in 2016. These have been paid directly to PRIAC.
Note 8 – 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, including credit risk on fully benefit-responsive investment contracts. Credit risk exists for these contracts because there are no reserves by the insurance company against the contract value disclosed, other than the underlying assets of the synthetic investment contracts, which the Plan owns. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in 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.
CIGNA 401(k) PLAN
NOTES TO THE FINANCIAL STATEMENTS
Note 9 – 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 as of December 31, 2016.
Net Assets available for benefits per the Statements of Net Assets Available
|
|
|
|
|
for Benefits
|
$
|
5,052,597
|
|
|
Difference between contract value and current value on fully benefit-
|
|
|
|
|
responsive contracts (a)
|
|
(14,039)
|
|
|
Net Assets available for benefits per the Form 5500
|
$
|
5,038,558
|
|
|
|
|
|
|
|
(a) Fully benefit-responsive contracts are required to be carried at contract value in the Statements of Net Assets Available for Benefits.
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE