Notes to Financial Statements
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1.
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Description of the Plan
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The following description of the Ecology & Environment, Inc. 401(k) Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan’s Adoption Agreement (as amended, the “Plan Document”) for a more comprehensive description of the Plan’s provisions.
General
The Plan was established January 1, 1994 as a defined-contribution plan to cover all eligible employees of Ecology and Environment, Inc. (the “Company”). All employees age twenty-one or older are eligible to participate in the Plan during the month following their date of hire. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”). The Ecology and Environment 401(k) Plan Committee (the “401(k) Plan Committee”) is responsible for oversight of the Plan, determining the appropriateness of the Plan’s investment offerings, monitoring investment performance and reporting to the Company’s Board of Directors.
Walsh Environmental Scientist and Engineers, LLC (“Walsh”) was fully acquired by the Company in 2014. Effective February 1, 2016, the Plan was amended to allow the former Walsh employees to participate in the Plan. Effective December 30, 2016, Walsh’s 401(k) Plan net assets were merged into the Plan. The total fair market value of the net assets merged and transferred into the Plan was $5,921,643.
Plan Administration
The Company is the Administrator of the Plan. Great-West Trust Company, LLC (“Great-West”; formerly Putnam Fiduciary Trust Company) is the Trustee of the Plan and serves as the Custodian of Plan assets. Empower Retirement is the Record-keeper of the Plan.
Certain expenses of maintaining the Plan are paid directly by the Company and are excluded from these financial statements. The remaining expenses are paid for by the Plan’s participants.
Voluntary Correction Plan
During calendar year 2015, the Company discovered an operational error related to certain employees of a subsidiary of the Company who became employees of the Company during calendar year 2015. Although the employees completed appropriate administrative forms and began participation in August 2015, the Plan’s Adoption Agreement in effect at that time specifically excluded these former subsidiary employees from participation. An amended Plan Adoption Agreement was consummated in February 2016 to include these employees.
In May 2016, the Company filed a Voluntary Correction Program (the “VCP”) with the Internal Revenue Service (the “IRS”) to report this operational error. In July 2016, the Company received a compliance statement from the IRS that indicates the IRS’s agreement that the corrective methods and revised administrative procedures described in the VCP are acceptable.
Contributions
All contributions to the Plan are cash contributions, and all investments of the Plan are participant directed. Participants may elect to make voluntary contributions subject to the limitations of the Internal Revenue Code (the “IRC”). Upon enrollment in the Plan, a participant may direct, in at least 10 percent increments in each option selected, his or her contributions in any combination of the various investment options and a self-directed brokerage access account. The Plan allows Roth 401(k) contributions from participants. Participants who were 50 years of age or older during the Plan year are allowed to contribute catch-up contributions.
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Ecology and Environment, Inc.
401(k) Plan
Financial Statements and Supplemental Schedule
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Participant Accounts
Each participant’s account is credited with the participant’s contribution and the Plan’s earnings, and charged with an allocation of administrative expenses paid by the Plan. Allocations of administrative expenses are based on participant account balances, as defined in the Plan Document. The benefit to which a participant is entitled is the participant’s vested account balance.
Vesting
Participants are immediately vested in their contributions plus actual earnings thereon. There is no partial vesting.
Payment of Benefits
Participants may withdraw all or a portion of their vested account balance at any time upon hardship or after the attainment of age 59½. Participants must begin to receive benefits no later than the April 1
st
following the calendar year in which the participant attains 70½ or terminates employment, whichever is later.
Upon termination, if a participant’s vested account balance is $1,000 or less, the participant will automatically receive a lump sum distribution as soon as feasible.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right to discontinue and terminate the Plan at any time, subject to the provisions of ERISA.
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2.
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Summary of Accounting Policies
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Basis of Accounting
The financial statements of the Plan are prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Investments and Related Transactions
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 transfer between market participants at the measurement date. The Plan’s assets include an investment in the common stock of the Company through a unitized stock fund, which includes a money market fund for liquidity purposes, and through the brokerage access account. The 401(k) Plan Committee determines the Plan’s valuation policies utilizing information provided by investment advisers and the Trustee. Refer to Note 5 for additional disclosures regarding fair value measurements.
The Plan’s net appreciation in fair value of investments includes both realized gains and losses and unrealized appreciation (depreciation) on investments bought and sold as well as held during the year. Interest and dividend income is recognized as earned on the accrual basis. Dividends are recorded on the ex-dividend date. Investment transactions are accounted for on a trade date basis.
Notes Receivable from Participants
Participants may borrow from their account a minimum of $1,000 with a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Note terms range from one to five years or a reasonable period of time determined when the note is made for the purchase of a primary residence. The notes are collateralized by the balance in the participant’s account. The interest rate is the Prime Rate published by the Wall Street Journal on the first business day of the month during which the loan is originated plus 1%. The interest rate is fixed over the life of the loan. Principal and interest are paid ratably through bi-weekly payroll deductions.
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Ecology and Environment, Inc.
401(k) Plan
Financial Statements and Supplemental Schedule
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Notes receivable from participants are measured at their unpaid principal balances plus any accrued but unpaid interest. Interest income is recorded on the accrual basis. Delinquent notes receivable are reclassified as distributions based upon the terms of the Plan Document. No allowance for credit losses was recorded at December 31, 2016 or 2015.
Payment of Benefits
Benefits are recorded when paid by the Plan.
Use of Estimates
Preparation of the Plan’s financial statements in conformity with U.S. GAAP requires the Company, as the Administrator, to make estimates and assumptions that affect the reported amounts of net assets and disclosures of contingent net assets at the date of the financial statements and the reported amounts of changes in net assets during the reporting period. Actual results could differ from those estimates.
The IRS has determined, and has informed Great-West by a letter dated May 18, 2011, that the prototype non-standardized profit sharing plan adopted by the Plan is designed in accordance with the applicable sections of the IRC. Although the Plan has been amended since receiving the determination letter, the Company and the Plan’s tax counsel believe that the Plan was designed and has operated in compliance with applicable requirements of the IRC.
The Plan is subject to routine examinations by taxing jurisdictions. U.S. GAAP requires the Company’s management to evaluate tax positions taken by the Plan and to recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by taxing jurisdictions. The Company has analyzed the tax positions taken by the Plan and has concluded that as of December 31, 2016 and 2015, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in these financial statements.
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4.
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Risks and Uncertainties
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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.
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5.
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Fair Value Measurements
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The U.S. GAAP framework for measuring fair value provides a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows.
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Level 1:
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Inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Plan can access at the measurement date.
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Ecology and Environment, Inc.
401(k) Plan
Financial Statements and Supplemental Schedule
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Level 2:
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Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as:
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·
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Quoted prices for similar assets or liabilities in active markets
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·
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Quoted prices for identical or similar assets or liabilities in inactive markets
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·
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Inputs other than quoted prices that are observable for the asset or liability
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·
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Inputs that are derived principally from or corroborated by observable market data by correlation or other means
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If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
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Level 3:
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Inputs that are unobservable inputs for the asset or liability.
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The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value. There were no transfers between level 1 and level 2 assets for the years ended December 31, 2016 and 2015.
Self-directed brokerage account:
Primarily consists of mutual funds, exchange traded funds (EFT’s) and common stocks that are valued on the basis of readily determinable market prices of the associated investment.
Mutual funds:
Valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-ended mutual funds that are registered with 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.
Unitized stock fund:
Valued at the closing price reported on the active market on which the individual securities are traded. A small portion of the fund is invested in short-term money market instruments.
Common collective trust funds:
In accordance with U.S. GAAP, the Plan’s investments in common collective trust funds, which are measured at NAV per share (or its equivalent) as a practical expedient, are excluded from the fair value hierarchy. The fair value of the Plan’s interest in the collective trust funds is based on the NAV reported by the fund managers as of the financial statement dates and recent transaction prices. There are no participant redemption restrictions for these investments; the redemption notice period is applicable only to the Plan.
The following fully benefit-responsive investment funds are included in the collective trust funds as of December 31, 2016 and 2015:
Stable value fund:
The stable value fund is comprised primarily of fully benefit-responsive investment contracts that are valued at the NAV of units of the bank collective trust. The NAV is used as a practical expedient to estimate fair value. 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. Participant transactions (purchases and sales) may occur daily. If the Plan initiates a full redemption of the collective trust, the issuer reserves the right to require 12 months’ notification in order to ensure that securities liquidations will be carried out in an orderly business manner.
S&P 500 index fund:
The S&P 500 index fund is a collective investment trust valued at the NAV of units of the trust. The NAV is used as a practical expedient to estimate fair value. The fund invests primarily in common stock securities.
The fair value calculations produced by the preceding methods may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Plan believes its valuation methods 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 at the reporting date.
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Ecology and Environment, Inc.
401(k) Plan
Financial Statements and Supplemental Schedule
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Fair values of the Plan’s investments, and a reconciliation of investments included within the fair value hierarchy to total investments, at fair value presented in the statement of net assets available for benefits, are presented in the following table.
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Assets at Fair Value at December 31, 2016
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Level 1
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Level 2
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Level 3
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Total
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Mutual funds
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$
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32,529,289
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$
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---
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$
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---
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$
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32,529,289
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Self-directed brokerage account
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1,205,151
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---
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---
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1,205,151
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Unitized stock fund
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496,514
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---
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---
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496,514
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Total assets in fair value hierarchy
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$
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34,230,954
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$
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---
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$
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---
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34,230,954
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Investments measured at NAV
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10,299,798
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Investments, at fair value
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$
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44,530,752
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Assets at Fair Value at December 31, 2015
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Level 1
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Level 2
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Level 3
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Total
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Mutual funds
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$
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29,750,136
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$
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---
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$
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---
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$
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29,750,136
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Self-directed brokerage account
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1,059,121
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---
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---
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1,059,121
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Unitized stock fund
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467,589
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---
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---
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467,589
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Total assets in fair value hierarchy
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$
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31,276,846
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$
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---
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$
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---
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31,276,846
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Investments measured at NAV
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10,259,408
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Investments, at fair value
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$
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41,536,254
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Investments measured at fair value based on the NAV per share practical expedient are summarized in the following table.
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Fair Value
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Unfunded
Commitments
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Redemption
Frequency
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Redemption
Notice Period
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Balance at December 31, 2016:
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Common collective trust funds
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$
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10,299,798
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None
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Daily
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None
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Balance at December 31, 2015:
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Common collective trust funds
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$
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10,259,408
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None
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Daily
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None
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6.
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Related Party Transactions and Parties-in-Interest
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At December 31, 2016 and 2015, certain Plan investments are managed by Great West, the Trustee, and therefore qualify as party-in-interest transactions. The Plan also allows participants to elect to invest in the common stock of Ecology and Environment, Inc. Transactions in such investments qualify as party-in-interest transactions which are exempt from the prohibited transaction rules. Plan investments include securities issued by the Company, as summarized in the following table.
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Balance at
December 31, 2016
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Balance at
December 31, 2015
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Number
of Shares
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Fair Value
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Number
of Shares
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Fair Value
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Unitized Stock Fund:
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Ecology and Environment, Inc. Class A Common Stock
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41,166
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$
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434,314
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38,814
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$
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404,539
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Brokerage Access Account:
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Ecology and Environment, Inc. Class A Common Stock
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6,265
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$
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66,096
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6,265
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$
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64,091
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Ecology and Environment, Inc.
401(k) Plan
Financial Statements and Supplemental Schedule
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Dividends received from Ecology and Environment, Inc. Class A Common Stock totaled $17,919 during the year ended December 31, 2016.
Plan investments include certain funds administered by the Trustee and Record-keeper of the Plan.
Fees paid by the Plan to the Trustee for administrative services were $2,764 for the year ended December 31, 2016. Fees incurred by the Plan for the investment management and recordkeeping services are included in net appreciation in fair value of the investments, as they are paid through revenue sharing, rather than a direct payment. All other expenses related to the Plan’s operations were paid directly by the Company and have been excluded from these financial statements.
Plan investment income from participant loans was $10,680 for the year ended December 31, 2016.
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7.
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Reconciliation of Financial Statements to Form 5500
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The following table provides reconciliations between these financial statements and the Plan’s Form 5500, Annual Return/Report of Employee Benefit Plan (the “Form 5500”).
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Plan Year Ended
December 31,
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2016
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2015
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Net assets available for Plan benefits:
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Plan net assets at year-end per these financial statements
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$
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50,703,110
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$
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41,805,255
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Miscellaneous adjustments
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---
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---
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Plan net assets at year end per the Plan’s Form 5500
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$
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50,703,110
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$
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41,805,255
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Net increase (decrease) in net assets available for Plan benefits:
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Increase (decrease) in Plan net assets per these financial statements
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$
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8,897,855
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$
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(770,428
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)
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Miscellaneous adjustments
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---
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(66,648
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)
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Increase (decrease) in Plan net assets per the Plan’s Form 5500
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$
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8,897,855
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$
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(837,076
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)
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