Notes to Financial Statements
|
Note 1.
|
Plan Description and Summary of Significant Accounting
Policies
|
The following description of the American
Public Education Retirement Plan (the “Plan”) provides only general information. Participants should refer to the Plan
agreement for a more complete description of the Plan’s provisions.
General
:
Effective January 1, 2014, the Plan Sponsor
changed from American Public University System, Inc. to American Public Education, Inc. (“APEI” or the “Company”)
and the Plan name changed from the American Public University System Retirement Plan to the American Public Education Retirement
Plan. The Plan is a 401(k) profit sharing plan covering all eligible employees under the Plan’s provisions. The Plan is subject
to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). On June 16, 2015, the
Plan was amended so that, effective August 31, 2015, the Plan no longer allowed participants to invest future contributions in
APEI Common Stock (prior to August 31, 2015, participants were able to invest future contributions in APEI Common Stock).
A
ll
future contributions allocated to APEI Common Stock after August 31, 2015 were automatically invested in an age-appropriate Fidelity
Freedom Fund (beginning April 29, 2016, the Fidelity Freedom K Fund). Subsequently, effective June 30, 2016, the Plan completely
removed APEI Common Stock as an investment option. Participants who had contributions invested in APEI Common Stock were given
proper advanced notice and had the option to transfer balances to other Plan investment options or, if eligible, withdraw such
amounts by June 23, 2016. Effective June 30, 2016, all Plan contributions invested in APEI Common Stock as of such date were automatically
re-allocated to the age-appropiate Fidelity Freedom K Fund with respect to the applicable participants.
Eligibility
:
All employees of the Company and its participating
subsidiaries are eligible for participation in the Plan except for employees covered by a collective bargaining agreement, non-resident
aliens who do not receive income from the Company or its subsidiaries which constitutes United States income, and residents of
Puerto Rico. Effective January 1, 2016, the Plan was amended to implement automatic enrollment and, accordingly, employees hired
on or after January 1, 2016, were automatically enrolled in the Plan within 30 days of hire. Prior to January 1, 2016, participants
were eligible to participate in the Plan beginning on the first day of the calendar quarter after they became an employee.
Contributions
:
Each year participants may contribute a
specified dollar amount or percentage of their eligible compensation (as defined in the Plan and up to the annual Internal Revenue
Service (“IRS”) maximum) on a pre-tax basis not to exceed the lesser of 60% of compensation or Internal Revenue Service
(“IRS”) limits. Participants who have attained or are expected to attain the age of 50 before the end of the plan year
are eligible to make additional pre-tax catch-up contributions. Participants may also contribute amounts representing distributions
from other qualified plans. Participants direct the investment of their contributions into various investment options offered by
the Plan. With respect to each eligible participant, the Company makes an annual safe harbor matching contribution equal to 100%
of the first 3% and 50% of the next 2% of eligible compensation contributed to the Plan. Additional amounts may be contributed
by the Company in its sole discretion. As described above, effective January 1, 2016, the Plan was amended to implement automatic
enrollment for all individuals who became eligible employees on or after January 1, 2016. All such employees are automatically
enrolled in the Plan within 30 days of hire at a contribution rate of 5% of eligible compensation, unless the employee affirmatively
elects not to contribute or to contribute a different amount. All contributions made under the Plan are subject to all applicable
IRS limits.
American Public Education Retirement Plan
Notes to Financial Statements
|
Note 1.
|
Plan Description and Summary of Significant Accounting
Policies (cont’d)
|
Participant accounts
:
Each participant’s account is credited
with the participant’s contributions and allocations of (a) the Company’s contribution (as described above) and (b)
Plan earnings/losses, and charged with administrative expenses, if applicable. Allocations of earnings and losses are based on
the investment options elected by a participant and the amounts contributed to those elections. The benefit to which a participant
is entitled is the benefit that can be provided from the participant’s vested account in the Plan. The Plan is intended to
comply with Section 404(c) of ERISA.
Vesting
:
Participants are immediately vested in
their pre-tax contributions, the safe harbor matching contributions, any rollover contributions, and any discretionary non-elective
Company contribution to the Plan, plus actual earnings thereon.
Payment of benefits
:
On termination of service, a participant
may elect to receive either a lump-sum amount equal to the value of the participant’s vested interest in his or her account,
or installment payments.
If a participant’s account balance
is $1,000 or less upon termination of service, the Plan administrator will direct the trustee (as defined by the Plan) to make
a lump-sum distribution. If a participant’s account balance is more than $1,000 but less than $5,000 upon termination of
service, the Plan administrator may direct the trustee to distribute the amount from the Plan without the participant’s consent
by rolling it over to an individual retirement plan.
In addition, participants may make withdrawals from their account upon
attainment of age 59 1/2. Participants may also make withdrawals from their vested balance for reasons of financial hardship, subject
to a $500 minimum, under specific guidelines set forth in the Plan. As of December 31, 2016 and 2015, there were no net assets
of the Plan allocated to participants who had elected to withdraw from the Plan but had not been paid by year-end.
Notes receivable from participants
:
Participants may borrow up to 50% of their
vested account balance, not to exceed $50,000, without regard to the intended use of the funds. The minimum note amount is $1,000
and a participant may hold only one outstanding note at any given time. The notes are collateralized by the participant’s
vested account balance. Note repayments are to be made each pay period through payroll deductions. The interest rate for
the duration of the note is comparable to those offered for comparable borrowings by financial institutions at the time of note
origination. Participants are assessed an annual fee of $25 for each outstanding note. Notes taken for the purchase of a primary
residence are required to be paid within ten years. All other notes must be paid within five years.
Administrative
expenses
:
The Plan’s direct administrative
expenses are paid by either the Plan or the Plan Sponsor as provided by the Plan. The Plan paid direct administrative expenses
of $15,440 during the year ended December 31, 2016. The Company provides certain accounting and administrative services to the
Plan for which no fees are charged.
A summary of the Plan’s significant
accounting policies follows:
Basis of accounting
:
The accompanying financial statements are
prepared under the accrual method of accounting whereby investment income is recognized when earned and expenses are recognized
when incurred.
American Public Education Retirement Plan
Notes to Financial Statements
|
Note 1.
|
Plan Description and Summary of Significant Accounting
Policies (cont’d)
|
Use of estimates
:
The preparation of the financial statements
in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the Plan’s
management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and changes
therein and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Investment valuation and income recognition
:
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. See Note 2 for a discussion of fair value measurements.
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. Net appreciation
or depreciation includes the Plan’s gains and losses on investments bought, sold, and held during the year.
Payment of benefits
:
Benefits are recorded when paid.
Income taxes
:
GAAP requires the Plan’s management
to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken any uncertain tax positions that
more likely than not would not be sustained upon examination by a tax authority. Management has evaluated the Plan’s tax
positions and concluded that the Plan has maintained its tax-exempt status and has taken no uncertain tax positions that require
adjustment to the financial statements. Therefore, no provision or liability for income taxes has been included in the financial
statements. The Plan recognizes interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense.
The Plan did not have any amounts accrued relating to interest and penalties as of December 31, 2016 and 2015.
Notes receivable from participants
:
Notes receivable from participants are
measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent notes are treated as deemed distributions
based on the terms of the Plan agreement.
Accounting changes
:
In July 2015, the Financial Accounting
Standards Board (“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 II, which is the only
part applicable to the Plan, eliminated the requirements to disclose individual investments that represent 5% 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 simplified
the level of disaggregation of investments that are measured using fair value. Plans must 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 must be provided by general type
of plan asset. ASU 2015-12 is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. Management
elected to early adopt Part II during the year ended December 31, 2015, and applied it retrospectively.
American Public Education Retirement Plan
Notes to Financial Statements
|
Note 1.
|
Plan Description and Summary of Significant Accounting
Policies (cont’d)
|
Subsequent events
:
The Plan has evaluated subsequent events
through the report issuance date and determined there were no material events that warrant disclosure.
FASB
Accounting Standards Codification (ASC) 820, “Fair Value Measurement
,
” defines fair value and establishes a
framework for measuring fair value. The framework provides a fair value 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 under ASC 820 are described below:
Level 1.
Inputs
to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan
has the ability to access.
Level 2.
Inputs to the valuation methodology include:
|
·
|
Quoted prices for similar assets or liabilities
in active markets;
|
|
Note 2.
|
Plan Investments (Continued)
|
|
·
|
Quoted prices for identical or similar
assets or liabilities in inactive markets;
|
|
·
|
Inputs other than quoted prices that are
observable for the asset or liability; or
|
|
·
|
Inputs that are derived principally from
or corroborated by observable market data by correlation or other means.
|
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.
Level 3.
Inputs
to the valuation methodology are unobservable and significant to the fair value measurement.
The asset’s 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 need to maximize the use of observable inputs and minimize the use of unobservable
inputs.
The following is a description of the valuation
methodologies used for assets measured at fair value. There were no changes in the valuation methodologies used for the years ending
December 31, 2016 and 2015.
|
·
|
Mutual Funds:
Valued at the net
asset value of the shares held by the fund at year end.
|
|
·
|
Common Stock
: Valued at the closing
price at year end reported on the active market on which the individual security is traded.
|
|
|
Total Investments at Fair Value as of December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Mutual Funds
|
|
$
|
72,106,468
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
72,106,468
|
|
Total Investments at Fair Value
|
|
$
|
72,106,468
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
72,106,468
|
|
American Public Education Retirement Plan
Notes to Financial Statements
|
|
Total Investments at Fair Value as of December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Mutual Funds
|
|
$
|
62,889,608
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
62,889,608
|
|
APEI Common stock
|
|
$
|
472,704
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
472,704
|
|
Total Investments at Fair Value
|
|
$
|
63,362,312
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
63,362,312
|
|
The methods described above may produce
a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while
the Plan administrator believes its valuation methods are appropriate and consistent with those of 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.
|
Note 3.
|
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 value 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.
Although it has not expressed any intent
to do so, the Company has the right under the Plan to discontinue its contributions and terminate the Plan, subject to the provisions
of ERISA.
The Plan was restated effective November
20, 2015 by adopting a pre-approved plan document, with respect to which the Internal Revenue Service has issued an opinion letter
dated March 31, 2014. The opinion letter states that the Plan document is acceptable and may be relied on by an adopting
employer with respect to the qualification of the Plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (“IRC”),
as provided in Revenue Procedure 2011-49. Although the Plan has been amended since receiving the opinion letter, the Plan
administrator believes that the Plan is designed, and currently being operated, in compliance with the applicable requirements
of the IRC and, therefore, believes the Plan continues to be qualified, and the related trust tax-exempt.
|
Note 6.
|
Related Party Transactions
|
Certain Plan investments are shares of
mutual funds managed by Fidelity Investments. Fidelity Management Trust Company, a subsidiary of Fidelity Investments (collectively
“Fidelity”), is the trustee as defined by the Plan, and therefore, these transactions qualify as related party transactions.
Administrative expenses paid by the Plan to Fidelity were $15,440 for the year ended December 31, 2016. The Company provides certain
accounting and administrative services to the Plan for which no fees are charged. The Plan allows participants to borrow against
their vested account balances. All such transactions qualify as party-in-interest transactions that are exempt from the prohibited
transaction rules. Until June 30, 2016, the Common Stock of APEI, the Plan Sponsor, was an investment option under the Plan (however,
no future contributions could be invested in the Common Stock of APEI after August 31, 2015) and therefore any such investments
qualified as party-in-interest transactions. During the year ended December 31, 2016, Plan participants sold 25,356 shares of APEI
Common Stock with aggregate proceeds of $868,127.
American Public Education Retirement Plan
Notes to Financial Statements
|
Note 7.
|
Reconciliation of Financial Statements to Form 5500
|
For the years ended December 31, 2016 and
2015, the following is a reconciliation of net assets available for benefits as reported on the financial statements to Form 5500
(Annual Return/Report of Employee Benefit Plan):
|
|
2016
|
|
|
2015
|
|
Net assets available for benefits per the financial statements
|
|
$
|
73,627,586
|
|
|
$
|
64,548,252
|
|
Contributions receivable
|
|
|
(33,732
|
)
|
|
|
(27,327
|
)
|
Net assets available for benefits per the Form 5500
|
|
$
|
73,593,854
|
|
|
$
|
64,520,925
|
|
The following is a reconciliation of changes
in net assets available for benefits as reported on the financial statements to Form 5500 for the year ended December 31, 2016:
Contributions per the financial statements
|
|
$
|
11,019,578
|
|
Employer Contributions Receivable, 2016
|
|
|
(33,732
|
)
|
Employer Contributions Receivable, 2015
|
|
|
27,327
|
|
Contributions per the Form 5500
|
|
$
|
11,013,173
|
|
|
Note 8.
|
Subsequent Events
|
None.
American Public Education Retirement Plan
Schedule Of Assets (Held At End Of Year)
Form 5500, Schedule H, Line 4i
December 31, 2016
Employer Identification Number: 01-0724376
Plan Number: 001
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
|
(e)
|
|
|
|
|
|
Description of Investment (including
|
|
|
|
|
|
|
|
|
Identity of Issue, Borrower,
|
|
maturity date, rate of interest
|
|
|
|
|
|
|
|
|
Lessor, or Similar Party
|
|
collateral, par or maturity value)
|
|
Cost **
|
|
|
Current Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
PIMCO
|
|
PIMCO Total Return Administrative
|
|
|
|
|
|
$
|
1,338,471
|
|
|
|
Virtus
|
|
Virtus Real Estate
|
|
|
|
|
|
|
295,515
|
|
|
|
Voya
|
|
Voya Mid Cap Opps A
|
|
|
|
|
|
|
1,955,118
|
|
|
|
Vanguard
|
|
Vanguard Short Term Investment Grade
|
|
|
|
|
|
|
634,692
|
|
|
|
MFS
|
|
MFS Value R3
|
|
|
|
|
|
|
1,215,169
|
|
*
|
|
Fidelity
|
|
Fidelity Contrafund
|
|
|
|
|
|
|
6,741,432
|
|
*
|
|
Fidelity
|
|
Fidelity Growth Company
|
|
|
|
|
|
|
4,156,118
|
|
*
|
|
Fidelity
|
|
Fidelity Intermediate Bond
|
|
|
|
|
|
|
1,175,374
|
|
*
|
|
Fidelity
|
|
Fidelity International Discovery
|
|
|
|
|
|
|
3,453,815
|
|
*
|
|
Fidelity
|
|
Fidelity Low Price Stock
|
|
|
|
|
|
|
3,556,733
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K Income
|
|
|
|
|
|
|
567,976
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K 2010
|
|
|
|
|
|
|
884,503
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K 2020
|
|
|
|
|
|
|
3,961,791
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K 2030
|
|
|
|
|
|
|
5,630,215
|
|
*
|
|
Fidelity
|
|
Fidelity Small Cap Discovery
|
|
|
|
|
|
|
1,932,501
|
|
*
|
|
Fidelity
|
|
Fidelity Total Market Index
|
|
|
|
|
|
|
3,079,016
|
|
*
|
|
Fidelity
|
|
Fidelity Extended Market Index
|
|
|
|
|
|
|
927,193
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K 2040
|
|
|
|
|
|
|
6,095,097
|
|
*
|
|
Fidelity
|
|
Fidelity Total Bond
|
|
|
|
|
|
|
829,311
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K 2005
|
|
|
|
|
|
|
105,362
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K 2015
|
|
|
|
|
|
|
1,059,210
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K 2025
|
|
|
|
|
|
|
3,623,213
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K 2035
|
|
|
|
|
|
|
5,543,920
|
|
*
|
|
Fidelity
|
|
Fidelity Small Cap Value
|
|
|
|
|
|
|
1,307,879
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K 2045
|
|
|
|
|
|
|
4,737,266
|
|
American Public Education Retirement Plan
Schedule Of Assets (Held At End Of Year)
Form 5500, Schedule H, Line 4i
December 31, 2016
Employer Identification Number: 01-0724376
Plan Number: 001
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
|
(e)
|
|
|
|
|
|
Description of Investment (including
|
|
|
|
|
|
|
|
|
Identity of Issue, Borrower,
|
|
maturity date, rate of interest
|
|
|
|
|
|
|
|
|
Lessor, or Similar Party
|
|
collateral, par or maturity value)
|
|
Cost **
|
|
|
Current Value
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K 2050
|
|
|
|
|
|
|
3,701,035
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K 2055
|
|
|
|
|
|
|
835,697
|
|
*
|
|
Fidelity
|
|
Fidelity Freedom K 2060
|
|
|
|
|
|
|
70,181
|
|
*
|
|
Fidelity
|
|
Fidelity Retirement Money Market
|
|
|
|
|
|
|
2,692,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
|
|
|
|
|
|
|
72,106,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Participant Loans
|
|
Interest rates for all loans at 4.25% - 4.50%
|
|
|
|
|
|
|
1,487,386
|
|
|
|
|
|
maturing through August 2026
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
73,593,854
|
|
|
**
|
Historical cost information is not required for participant-directed
investments.
|