Washington, D.C. 20549
[x] Annual Report pursuant to Section 15(d) of
the Securities Exchange of 1934
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 supplemental 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, 2020 and 2019
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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. Effective January
1, 2017, the Plan was amended to automatically increase participant contributions by 1% on the employee’s anniversary date each
year forward, unless the employee opts out. 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.
On July 20, 2020, the Plan was amended,
effective as of March 27, 2020, to implement certain changes provided for under the Coronavirus Aid, Relief, and Economic Security Act ("CARES ACT"), including allowing certain eligible individuals to a) receive coronavirus-related distributions; b) temporarily borrow a
maximum of $100,000; c) delay certain participant note repayments for up to one year; and d) temporarily suspend required minimum distributions.
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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. On January 4, 2021, MassMutual
was acquired by Empower Retirement (“Empower”).
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 $19,500 and $19,000 for the years ended December 31, 2020 and 2019, 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
CONSUMER PORTFOLIO SERVICES, INC. 401(K) PLAN
Notes to Financial Statements
December 31, 2020 and 2019
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(1)
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Description of the Plan (continued)
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(c)
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Contributions (continued)
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only permitted to make catch-up contributions
after they have already contributed the maximum amount for the year. The catch-up contribution limit was $6,500 for 2020 and $6,000 for
2019. Participants may rollover into the Plan amounts representing distributions from other qualified plans.
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 $1,449,626, and $1,563,785 for the years ended December 31, 2020 and 2019, respectively.
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
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 February 2021 and May 2034.
CONSUMER PORTFOLIO SERVICES, INC. 401(K) PLAN
Notes to Financial Statements
December 31, 2020 and 2019
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(1)
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Description of the Plan (continued)
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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.
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, 2020, and 2019, forfeited accounts totaled $147,027 and $66,267,
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 accordance with accounting principles generally accepted in the United States
of America (“GAAP”).
The Plan Administrator evaluated subsequent
events through June 30, 2021, the date the financial statements were available to be issued.
Publicly traded securities are carried
at fair value based on published market quotations. Shares of registered investment companies are valued at the 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.
Realized gains and losses on investments
are based on the fair 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.
CONSUMER PORTFOLIO SERVICES, INC. 401(K) PLAN
Notes to Financial Statements
December 31, 2020 and 2019
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(2)
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Significant Accounting Policies (continued)
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(c)
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Investments (continues)
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The Plan invests in a Guaranteed Interest
Contract (“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, 2020 and 2019, $187,779 and $167,929, 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
December 31, 2020 and 2019
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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, 2020
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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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34,368,831
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$
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34,368,831
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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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2,899,585
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2,899,585
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–
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–
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Interest bearing cash
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36,300
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36,300
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–
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–
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Total
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$
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37,304,716
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$
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37,304,716
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$
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–
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$
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–
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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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|
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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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|
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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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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 contracts 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 the 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.
On March 11, 2020, the World Health
Organization declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic
is having a negative ripple
CONSUMER PORTFOLIO SERVICES, INC. 401(K) PLAN
Notes to Financial Statements
December 31, 2020 and 2019
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(4)
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Risks and Uncertainties (continues)
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effect on the global economy, leading
to disruptions and volatility in the global financial markets. Most U.S states and many countries have issued policies intended to stop
or slow the further spread of the decease. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic
may have, and, as a result, the ultimate effect of the pandemic is uncertain and subject to change.
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, 2020, 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. Notes receivable from participants held by the
Plan also reflect party-in-interest transactions.
CONSUMER PORTFOLIO SERVICES, INC. 401(K) PLAN
Schedule H, Line 4i – Schedule of Assets (Held at End of Year) – December 31, 2020