Washington, D.C. 20549
A. Full title of the plan and the address
of the plan, if different
Consumer Portfolio Services, Inc. 401(k)
Plan
B. Name of issuer of the securities held
pursuant to the plan and the
I. Financial Statements.
Financial statements and schedule prepared
in accordance with the financial reporting requirements of the Employee Retirement Income Security Act of 1974, together with the
report of independent registered public accounting firm thereon, are filed herewith.
II. Exhibits:
Notes to Financial Statements
December 31, 2019 and 2018
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(1)
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Description of the Plan
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The following description of the
Consumer Portfolio Services, Inc. (the “Plan Sponsor” or “CPS, Inc.”) 401(k) Plan (the “Plan”)
provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s
provisions.
The Plan was established as
a profit sharing plan with cash or deferred arrangement on January 1, 1994. The Plan was restated as of January 1, 1996
to permit investment in the Plan Sponsor’s common stock without regard to Section 407(a) of the Employee Retirement
Income Security Act of 1974 (“ERISA”). Effective January 1, 2003, the Plan Sponsor adopted the MassMutual Life Insurance
Company Flexinvest® Prototype Non-Standardized 401(k) Profit Sharing Plan. During 2012, the Plan was amended to allow for automatic
enrollment with automatic deferral contributions of 3% of eligible compensation of employees eligible to participate in the Plan,
unless otherwise elected by such employees.
The Plan is a defined contribution
plan which provides retirement benefits for eligible employees of the Plan Sponsor. It is subject to the provisions of ERISA.
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(b)
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Administration of the Plan
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The Plan is administered by
the Human Resources Department (the “Plan Administrator”) of the Plan Sponsor. The Plan Administrator consults
with the benefits committee and other key management of the Plan Sponsor when managing the operations and the administration of
the Plan.
The Plan is operated under an
agreement which requires that MassMutual Retirement Services (MassMutual), as custodian and record-keeper, hold and distribute
the funds of the Plan in accordance with the text of the Plan and the instructions of the Plan Administrator or its designees.
Employees are eligible to participate
in the Plan after completing 90 days of service. In accordance with the Plan, participants may contribute up to 100% of their annual
compensation, after required deductions, such as those required by the Federal Insurance Contributions Act. Contributions are subject
to certain limitations as defined in the Plan agreement, as well as a maximum of $19,000 and $18,500 for the years ended December 31,
2019 and 2018, respectively, under the Internal Revenue Code (IRC) of 1986. Catch-up contributions (within the meaning of Section
414(v) of the IRC) can also be made by participants who reach age 50 during the plan year. Participants are only permitted to make
catch-up contributions after they have already contributed the maximum amount for the year. The catch-up contribution limit was
$6,000 for both 2019 and 2018. Participants may roll over into the Plan amounts representing distributions from other qualified
plans.
For each of the years ended
December 31, 2019 and 2018 the Plan Sponsor may make a discretionary matching contribution equal to a discretionary amount of each
participant’s pretax contributions up to a maximum of $2,000. Discretionary cash matching contributions were $1,563,785,
and $1,446,044 for the years ended December 31, 2019 and 2018, respectively.
CONSUMER PORTFOLIO SERVICES, INC. 401(K)
PLAN
Notes to Financial Statements (continued)
December 31, 2019 and 2018
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(1)
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Description of the Plan (continued)
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Each participant’s account
is credited with the participant’s contributions, allocations of the Plan Sponsor’s matching contributions and investment
earnings and charged with an allocation of expenses and investment losses. Allocations are based on participant earnings or account
balances, as defined in the Plan agreement.
Participants are immediately
vested in their contributions plus actual earnings thereon. Vesting in the Plan Sponsor’s matching contributions plus actual
earnings thereon is based on years of continuous service. A participant vests at the rate of 20% after two years of credited service
and 20% each year thereafter until 100% is reached after six years of credited service. Participants are also fully vested at death,
retirement and upon termination for disability.
The Plan offers various investment
options which are managed by several outside investment managers. Upon enrollment in the Plan, participants may direct their contributions
in any of the investment options offered at the time. Participants may change their investment options daily. Participants should
refer to the investment literature provided by the Plan Sponsor for a complete description of the investment options and for the
detailed composition of each investment fund.
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(g)
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Notes Receivable from Participants
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Participants may borrow from
their fund accounts. Such borrowings and repayments are treated as transfers from and to, respectively, the participant’s
investment funds. Borrowings are secured by the participant’s vested account balance and bear interest at a rate commensurate
with local prevailing rates as determined by the Plan Administrator. Loans are limited to the lesser of $50,000, reduced by the
highest outstanding loan balance during the preceding 12 months, or 50% of the participant’s vested account balance.
A loan shall be repaid within five years, unless it is used for the purchase of a primary residence.
Notes receivable from participants
are payable through payroll deductions in installments of principal plus interest of prime rate plus 1 percentage point with final
payments due between January 2020 and August 2031.
Upon termination of service,
a participant may elect to receive either a single lump sum payment in cash equal to the value of the vested interest in his or
her account, or a series of substantially equal annual or more frequent installments over a period not to exceed the participant’s
life expectancy. Benefits are recorded when paid.
CONSUMER PORTFOLIO SERVICES, INC. 401(K)
PLAN
Notes to Financial Statements (continued)
December 31, 2019 and 2018
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(1)
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Description of the Plan (continued)
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In accordance with the Plan
agreement, forfeitures attributable to matching contributions must be applied first to reduce expenses related to the administration
of the Plan and then to reduce any employer contributions. As of December 31, 2019 and 2018, forfeited accounts totaled $66,267
and $72,300, respectively.
Although it has not expressed
any intent to do so, the Plan Sponsor has the right under the Plan to terminate the Plan subject to the provisions of ERISA. In
the event of the Plan’s termination, participants will become 100% vested in their accounts.
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(2)
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Significant Accounting Policies
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The financial statements of
the Plan have been prepared on the accrual basis of accounting in according with accounting principles generally accepted with
United State of America (“GAAP”).
The Plan Administrator evaluated
subsequent events through June 26, 2020, the date the financial statements were available to be issued.
In March 2020, the World Health
Organization classified the novel coronavirus (“COVID-19”) outbreak as a pandemic, triggering volatility in financial
markets and negatively impacting the global economy. The full impact of the COVID-19 outbreak continues to evolve as of the date
of this report. Because the values of the Plan’s individual investments have and will fluctuate in response to changing market
conditions, the amount of losses that will be recognized in subsequent periods, if any, cannot be determined.
In response to the pandemic
outbreak of COVID-19, the United States Congress passed the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”)
to provide expanded access to retirement plan accounts. The Plan adopted provisions under the CARES Act related to distributions,
loans and deferred loan repayments for those participants who qualify under the CARES Act.
Publicly traded securities are
carried at fair value based on published market quotations. Shares of registered investment companies are valued at the net fair
value of the underlying assets at year-end. Purchases and sales of investments are recorded on a trade-date basis. Dividends are
recorded on the ex-dividend date. Interest income is recorded on the accrual basis.
CONSUMER PORTFOLIO SERVICES, INC. 401(K)
PLAN
Notes to Financial Statements (continued)
December 31, 2019 and 2018
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(2)
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Significant Accounting Policies (continued)
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Realized gains and losses on
investments are based on the market value of the asset at the beginning of the year or at the time of purchase for assets purchased
during the year and the related fair value on the date investments are sold during the year.
The Plan invests in a Guaranteed
Interest Account (“GIC”), which is valued at contract value based on the underlying value of the account’s group
annuity contract. In the event that the underlying agreements in the Plan’s investments in fully benefit-responsive investment
contracts are fully or partially terminated, participants will receive the liquidation value instead of the contract value. The
Plan Administrator does not anticipate the full or partial termination of such agreements in the foreseeable future.
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(d)
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Notes Receivable from Participants
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Notes receivable from participants
are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent participant loans are recorded
as distributions based on the terms of the Plan agreement.
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(e)
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Administrative Expenses
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The Plan and the Plan Sponsor
share plan expenses. Certain direct investment expenses, such as record keeping fees, brokerage fees, loan, withdrawal or distribution
processing fees are deducted from participants’ accounts. During the years ended December 31, 2019 and 2018, $167,929 and
$151,200, respectively, in Plan investment and administrative expenses were paid through the use of forfeitures.
The Plan Administrator has made
a number of estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements
in conformity with GAAP. Accordingly, actual results may differ from those estimates.
In accordance with GAAP, the
Plan uses a hierarchy for measuring the fair value of all financial assets and liabilities that are being measured and reported
at fair value on a recurring and non-recurring basis. Fair value is measured in levels, which are described in more detail below,
and are determined based on the observability and reliability of the assumptions used to determine fair value.
Level 1: Valuations for assets
and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions
involving identical assets or liabilities.
Level 2: Valuations for assets
and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical
or comparable assets or liabilities.
Level 3: Valuations for assets
and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models,
and similar techniques, and not based on market exchange, dealer or broker traded transactions. These valuations incorporate certain
assumptions and projections in determining the fair value assigned to such assets or liabilities.
CONSUMER PORTFOLIO SERVICES, INC. 401(K)
PLAN
Notes to Financial Statements (continued)
December 31, 2019 and 2018
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(3)
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Investments (continued)
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Certain investments in the Plan
are measured and reported at fair value on a recurring basis. The following tables show the balances of these investments based
on their GAAP designated levels:
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As of December 31, 2019
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Total
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Level 1
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Level 2
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Level 3
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Registered investment companies
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$
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30,394,297
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$
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30,394,297
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$
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–
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$
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–
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CPS, Inc. common stock
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2,198,827
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2,198,827
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–
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–
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Interest bearing cash
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99,652
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99,652
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–
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–
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Total
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$
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32,692,776
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$
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32,692,776
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$
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–
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$
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–
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|
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|
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As of December 31, 2018
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Total
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Level 1
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|
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Level 2
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|
|
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Level 3
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Registered investment companies
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$
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22,785,138
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|
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$
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22,785,138
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|
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$
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–
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$
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–
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CPS, Inc. common stock
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1,892,101
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1,892,101
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–
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|
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–
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Interest bearing cash
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93,245
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|
|
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93,245
|
|
|
|
–
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|
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–
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Total
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$
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24,770,484
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|
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$
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24,770,484
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$
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–
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$
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–
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Registered investment companies were valued at their daily closing price.
The Plan is a party to
a fully benefit-responsive guaranteed interest contract with MassMutual. The account is credited with earnings on the underlying
investments and charged for participant withdrawals and administrative expenses. The guaranteed interest contract issuer is contractually
obligated to repay the principal and a specified interest rate that is guaranteed to the Plan. Because the guaranteed investment
contract is fully benefit-responsive, contract value is the relevant measurement for that portion of the net assets available for
plan benefits attributable to the guaranteed investment contract. The guaranteed interest contract is presented on the face of
the statements of net assets available for benefits at contract value. Contract value, as reported to the Plan by MassMutual, represents
contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses. Participants may
ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value.
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(4)
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Risks and Uncertainties
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The Plan provides for various
investment options in money market funds, registered investment companies, guaranteed interest accounts and the common stock of
Consumer Portfolio Services, Inc. Investment securities are exposed to various risks such as interest rate, market, and credit
risks. Due to the level of uncertainty related to changes in value of investment securities, it is at least reasonably possible
that changes in the various risk factors could materially affect participants’ account balances and the amounts reported
in the financial statements.
CONSUMER PORTFOLIO SERVICES, INC. 401(K)
PLAN
Notes to Financial Statements (continued)
December 31, 2019 and 2018
The Internal Revenue Service (“IRS”)
has determined and informed the Plan Sponsor by a letter dated February 7, 1996 that the Plan and related trust are designed in
accordance with applicable sections of the IRC and is, therefore, exempt from Federal income taxes. As described in Note 1, the
Plan has been amended since receiving the determination letter, including the adoption of the MassMutual Life Insurance Company
Flexinvest® Prototype Non-Standardized 401(k) Profit Sharing Plan. The IRS has determined and notified MassMutual Life Insurance
Company by a letter dated February 20, 2015 that the form of the prototype plan is acceptable under section 401 of the Code for
use by employers for the benefit of their employees. The Plan Administrator believes that the Plan is designed and is currently
being operated in compliance with the applicable requirements of the IRC. Accordingly, no provision for income taxes is included
in the accompanying financial statements.
GAAP requires Plan management
to evaluate uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the
position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The Plan Administrator
has analyzed the tax positions taken by the Plan and has concluded that as of December 31, 2019, there are no uncertain positions
taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions.
Certain Plan investments are managed
by MassMutual. MassMutual is the custodian of these assets and provides record keeping services to the Plan and; therefore, these
transactions qualify as permitted party-in-interest transactions. The Plan Sponsor offers its common stock as an investment option
and performs administrative functions at no cost. These are also considered permitted party-in-interest transactions.
CONSUMER PORTFOLIO SERVICES, INC. 401(K) PLAN
Schedule H, Line 4i – Schedule of Assets (Held at Endof Year) – December 31, 2019