Notes to Financial Statements
December 31, 2018
and
2017
1. Description of Plan
The following brief description of the L.B. Foster Company 401(k) and Profit Sharing Plan (the “Plan”) is provided for general information purposes
only
. Participants should refer to the summary plan description for more complete information. The plan document is the governing instrument and should be referred to for a full description of the Plan and its provisions.
General
The Plan is a defined contribution plan extended to all eligible employees of L.B. Foster Company (the “Company”) who have attained age 18.
The L.B. Foster Company Investment Committee, appointed by the Board of Directors of the Company,
serves as the plan administrator. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended.
During 2018, certain eligible employees of the Company changed employee status from union to non-union. As a result, these participants became a participant in the Plan. As such, the account balances of these participants are shown as a plan transfer from a separate qualified plan sponsored by the Company in the accompanying statement of changes in net assets available for benefits.
Contributions and Forfeitures
Contributions under the Plan are made by both the participants and the Company. Participants may contribute up to 75% of their annual pretax compensation and up to 100% of their compensation on an after-tax basis, subject to Internal Revenue Code (the “Code”) limitations. Participant
and Company
contributions are invested in accordance with participant elections.
The Plan includes a provision for an immediate Company match.
For the plan year ended
December 31, 2017
,
p
articipants receive
d
a Company match of 100% of the first 1% of their eligible compensation and 50% of the next 6% of their eligible compensation for a maximum Company match of 4%.
Effective January 1, 2018, the Plan's participants receive a Company match of 100% of the first 3% of their eligible compensation and 50% of the next 2% of their compensation for a maximum Company match of 4%
. To be eligible for the Company’s matching contributions, participants must make pre
-
tax deferral contributions or Roth 401(k) after-tax deferral contributions. The Plan will match the combined total of these
participant deferrals
up to the matching limit.
The Company, upon resolution of the Board of Directors, may make a discretionary profit-sharing contribution of an amount out of, but not in excess of, the Company’s current or accumulated profits. Participants must have attained one year of service as of the last day of the plan year in order to be eligible for the discretionary profit-sharing contribution, if any, for that year
, except
those
parti
cipant
s
that
be
come disabled, retire, or
become
deceased
in th
at
y
ear
.
Discretionary profit-sharing contributions are directed into eligible participant accounts based on the participants’ investment elections at the time the contribution is made. Discretionary profit-sharing contributions of
$750,000
were approved for
2018
.
The Company’s matching contributions may be reduced by forfeitures that accumulate from terminations of participants with non-vested employer matching contributions. At
December 31, 2018
and
2017
, forfeitures of
$7,641
and
$21,936
, respectively, were available to
either first pay
administrative
ex
penses of the Plan, with any rema
ining amounts to reduce
future
Company contributions. During the year
ended
December 31, 2018
,
the
Company
utilize
d
forfeitures
of
approximately
$
41,000
to
pay administrative expenses of the Plan, with no amounts used to reduce Company contributions.
Participant Accounts
Each participant account is credited with the participant’s contributions, the participant’s allocable share of Company contributions, and related earnings (losses) of the funds. Participant accounts may be invested in 10% increments into Company stock or any of the mutual funds available under the Plan or other investment securities through a self-directed brokerage option at the direction of the participant.
Vesting
A participant’s vested interest in the Plan on any date is equal to the sum of the values of (a) that portion of the participant’s account attributable to the participant’s contributions, (b) that portion of the participant’s account attributable to the Company’s contributions multiplied by the applicable vesting percentage, and (c) related earnings (losses). Participants are 100%
cliff
vested in Company contributions after two years of eligible service.
Notwithstanding the above, a participant who terminates from the Plan by reason of retirement, disability, or death is fully vested in his or her participant account immediately upon such event.
Benefit Payments
Normal retirement age is 65. Early retirement age is 55, provided that the participant has at least five years of service. In addition, a participant may obtain an early retirement distribution prior to reaching age 55, provided that the participant will
turn 55 in the year the distribution occurs and that the participant has at least five years of service. The Plan also allows for age 59
1⁄2
in-service withdrawals of all or any portion of the participant’s vested account balance.
As provided by the Plan, the distribution to which a participant is entitled by reason of normal, early,
or disability retirement, death, or termination of employment may be made in the form of
a
direct rollover, annuity, cash, or partly in cash and partly as an annuity. The amount of such distribution is equal to the participant’s vested account balance on the valuation date.
Under the Plan, a participant may elect to withdraw voluntary, after-tax contributions made to the Plan prior to January 1, 1987. Such withdrawals are subject to a $1,000 minimum. In the event of hardship and subject to certain restrictions and limitations, as defined by the
p
lan document, a participant may withdraw their vested interest in the portion of their account, subject to a $500 minimum, attributable to matching, fixed and discretionary contributions, and related earnings.
Notes Receivable from Participants
A participant may borrow from the vested portion of his or her account, subject to a minimum of $1,000 and a maximum of $50,000. The loan proceeds are deducted from the participant’s account and are repaid by means of payroll deductions. Loans are required to be repaid within 60 months from the date on which the loan is originally granted and may be prepaid early without penalty
at any time
. The repayment period for a loan that is obtained for purchasing a primary residence may be as long as 120 months. The loan carries a reasonable interest rate
based on prime rate plus
1
%
on the date the loan is requested and remains fixed for the full term of the loan.
Intere
st rates ran
ged from 4.25
%
to 6.25
% at
December 31, 2018
.
Plan Termination
Although it has not expressed any intention to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. Should the Plan be terminated, participants will become fully vested in their accounts, and the assets of the Plan would be distributed to the participants based on their individual account balances as determined under the Plan
's
provisions.
2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are maintained under the accrual method of accounting in conformity with the accounting principles generally accepted in the United States
of America
(“
U
.S.
GAAP”).
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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 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.
Market values for investments may decline for a number of reasons, including changes in prevailing market and interest rates, increases in defaults, and credit rating downgrades. The fair values assigned to the investments by the Plan are based upon available information believed to be reliable, which may be affected by conditions in the financial markets. The Plan may not be able to sell its investments when it desires to do so or to realize what it perceives to be its fair value in the event of a sale.
Valuation of Investments 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 4 for discussion of fair value measurements.
Net
depreciation in fair value of investments
includes the Plan’s gains and losses on investments bought and sold as well as held during the year. Dividend income is recorded on the ex-dividend date and interest income is accrued as earned. Plan assets are concentrated in Company stock, self-directed brokerage accounts, and mutual funds consisting primarily of stocks and bonds. Realization of the Plan’s net assets available for benefits is dependent on the results of these markets.
Notes Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance
,
plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. No allowance for credit losses has been recorded as of
December 31, 2018
or
2017
. If a participant ceases to make loan repayments and the plan administrator deems the participant loan to be a distribution, the participant loan balance is reduced and a benefit payment is recorded.
Other Receivables and Payables
Other receivables and payables
(if any)
consist primarily of unsettled trades.
Benefit Payments
Benefit payments are recorded upon distribution of proceeds to a Plan participant.
Administrative Expenses
The Company, as provided by the Plan, pays expenses of the Plan. Certain administrative functions are performed by employees of the Company. No such employees receive compensation from the Plan. Expenses incurred to establish and maintain a loan are charged to the applicable participant.
Recent Accounting Standards
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-13,
Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
. ASU No. 2018-13 modifies the disclosure requirements for fair value measurements in
Accounting Standards Codification
Topic 820,
Fair Value Measurement
(
"
ASC
820
")
. The amendments are based on the concepts in the FASB Concepts Statement,
Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements
, which the FASB finalized on August 28, 2018. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. Management is currently assessing the impact that ASU No. 2018-13 will have on the Plan’s financial statements.
Subsequent Events
The Plan has evaluated subsequent events and has concluded that all events that would require recognition or disclosure
are
appropriately reflected in these financial statements.
3. Income Tax Status
The underlying volume submitter plan has received an advisory letter from the Internal Revenue Service (“IRS”) dated March 31, 2014 stating that the form of the
P
lan is qualified under Section 401 of the Code and therefore, the related trust is tax-exempt. In accordance with Revenue Procedures 2013-6 and 2011-49, the plan administrator has determined that it is eligible to and has chosen to rely on the current IRS volume submitter advisory letter. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualified status. The plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and therefore believes the Plan is qualified and the related trust is tax-exempt.
U.S.
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, 2018
, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions.
The Plan is currently under audit by IRS for the 2015 plan year. The examination by the IRS is ongoing and is expected to be completed during 2019.
4. Fair Value Measurements
The Plan applies the provisions of
ASC 820
, to its financial assets carried in the financial statements at fair value on a recurring basis. ASC 820 defines fair value as the exchange price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy and requires categorization of assets measured at fair value into one of three levels based on the inputs used in the valuation. Assets are classified in their entirety based on the lowest level of input significant to the fair value measurement. The three levels are defined as:
•
Level 1 – Observable inputs based on quoted prices (unadjusted) in active markets for identical assets.
•
Level 2 – Observable inputs, other than those included in Level 1, based on quoted prices for similar assets in active markets or quoted prices for identical assets in inactive markets.
•
Level 3 – Unobservable inputs that reflect an entity’s own assumptions about the inputs a market participant would use in pricing the asset based on the best information available in the circumstances.
There have been no changes in the methodologies used at
December 31, 2018
and
2017
, nor have there been any transfers between levels during the years presented. The following is a description of the investments and valuation methodologies used for assets measured at fair value:
Common stock
The Company's common stock is valued daily at the closing price reported on the active market.
Mutual funds
Various mutual funds are offered to the Plan participants. Mutual funds are publicly traded investments and are valued daily at the closing price reported on the active market on which the funds are traded.
Stable value collective trust funds
Fidelity Managed Income Portfolio Class 1 (“MIP CL 1 Fund”) and Putnam Stable Value Fund (“Putnam”) are the only stable value collective trust funds available to the Plan. The Plan uses the net asset value (“NAV”) per share of the funds provided by the trustee
of the funds
as a practical expedient to estimate fair value. The practical expedient would not be used if it is determined to be probable that the funds 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 funds, the trustee reserves the right to require 12 months’ notification in order to ensure that securities liquidations will be carried out in an orderly business manner. The funds’ units are issued and redeemed daily at the constant NAV of $1 per unit. The funds’ investment objective is stability of principal and high current income.
Self-directed brokerage accounts
Accounts primarily consist of publicly traded cash reserves, common stocks, preferred stocks, and publicly traded partnerships and trusts that are valued on the basis of readily determinable market prices.
F
air
value h
iera
rchy
Investments, stated at fair value, included in the
s
tatements of
n
et
a
ssets
a
vailable for
b
enefits consisted of mutual funds totaling
$62,014,087
and
$69,062,476
, the self-directed brokerage accounts of
$3,270,581
and
$3,203,380
, the Company’s common stock fund of
$1,352,772
and
$2,368,493
and the Company’s
s
tock
p
urchase
a
ccount of
$1,133
and
$2,393
as of
December 31, 2018
and
2017
, respectively. These investments are valued based upon daily unadjusted quoted prices and, therefore, are considered Level 1
fair value measurements
.
Excluded from the fair value disclosure above, the investment in the stable value collective trust funds are measured at NAV per share as a practical expedient. The
N
AV
as of
December 31, 2018
and
2017
for the investment
wa
s
$1,233,879
and
$1,025,779
, respectively. There are no unfunded commitments in regards to the
stable value
collective
trust
funds at
December 31, 2018
.
5
. Reconciliation of Financial Statements to Form 5500
The Form 5500 has been prepared using the fair value of the underlying investments held by the stable value
collective trust
fund
s
, instead of using NAV as the practical expedient to estimate fair value (see Note 4). The following is a reconciliation of the net assets available for benefits per the financial statements to Schedule H of Form 5500 as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
2018
|
|
2017
|
|
Net assets available for benefits per financial statements
|
|
$
|
70,717,820
|
|
$
|
78,211,560
|
|
Adjustment from contract value to fair value for interest in stable value collective trust funds relating to fully benefit-responsive investment contracts
|
|
(13,048)
|
|
(2,873)
|
|
Net assets available for benefits per Form 5500
|
|
$
|
70,704,772
|
|
$
|
78,208,687
|
The following is a reconciliation of the net
de
crease
in net asse
ts available for benefits per the financial statements to
Form 5500 for the
year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
Net decrease per the financial statements
|
|
$
|
(7,505,428)
|
|
Net change in adjustment from contract value to fair value for interest in stable value collective trust funds relating to fully benefit-responsive investment contracts
|
|
(10,175)
|
|
Net loss per Form 5500
|
|
$
|
(7,515,603)
|
6. Transactions with Parties-in-Interest
Certain trustee, accounting, and administrative expenses relating to the maintenance of participant records and the Plan’s administration are absorbed by the Company and may qualify as party-in-interest transactions under ERISA. The Company is the plan sponsor, and therefore, transactions with the Company may qualify as exempt party-in-interest. Notes receivable from participants also qualify as exempt party-in-interest transactions. The Plan also invests in Company stock. At December 31, 2018 and 2017, the Plan held an aggregate of 85,080 and 87,237 shares of the Company's common stock valued at $1,352,772 and $2,368,493 respectively. There were no dividends received on the Company's common stock during December 31, 2018 and 2017. During 2018, the Plan purchased 14,022 shares of the Company's common stock at an aggregate cost of approximately $323,000 and sold 16,179 shares of the Company's common stock for proceeds of approximately $389,000.
7. Delinquent Participant Contributions
For the year ended December 31, 2018, the Company did not remit certain participant contributions
to the Plan on a timely basis as defined by the Department of Labor’s Rules and Regulations for
Reporting and Delinquent Participant Contributions Disclosure under ERISA. Untimely
remittances identified on the Schedule of Delinquent Participant Contributions, which totaled
$1,355,679
, w
ill be
corrected outside the Department of Labor Voluntary Fiduciary Correction
Program in
2019.
Additionally, the Company
will
compensate
participants for lost
earnings resulting from the delay in these participant contributions.