Notes to Financial Statements
As of December 31, 2019 and 2018 and for the Year Ended December 31, 2019
NOTE 1 - DESCRIPTION OF PLAN
The
following description of the BNSF Railway Company Non-Salaried Employees 401(k) Retirement Plan (the Plan) provides only general information. Participants should refer to the Plan document for a more complete
description of the Plans provisions. BNSF Railway Company, including its majority-owned subsidiaries, (collectively, BNSF Railway) is a wholly-owned subsidiary of Burlington Northern Santa Fe, LLC (BNSF).
General
The purpose of
the Plan, which is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), is to offer eligible non-salaried employees of BNSF Railway an opportunity to invest a portion of
their income on a regular basis through payroll deductions. These amounts, supplemented in some cases by BNSF Railways matching contributions, may be invested at the participants direction in various investment funds.
Effective January 1, 2011, based on a Memorandum of Agreement between the Brotherhood of Locomotive Engineers and Trainmen (BLET) and
BNSF Railway Company, on approximately March 1 of each year, BNSF Railway will contribute a single vested contribution on behalf of each eligible employee (BLET Contribution).
Administration
The Plan
is administered by BNSFs Vice President and Chief Human Resources Officer (the Plan Administrator). Vanguard Fiduciary Trust Company (the Trustee) is responsible for the custody and management of the Plans assets, and an affiliate of the
Trustee provides recordkeeping services to the Plan. BNSF Railways Employee Benefits Committee is responsible for appointing and removing the Trustee, specifying the investment options available under the Plan (if not otherwise mandated by the
Plan), and reviewing benefit claims appeals.
Master Trust
The Plan participates in the BNSF 401(k) Plans Master Trust (the Master Trust) and, along with the Burlington Northern Santa Fe Investment and
Retirement Plan (the Salaried Plan), owns a percentage of the assets in the Master Trust.
Eligibility
Employees eligible under the Plan include any person who establishes seniority under a collective bargaining agreement that provides for
participation in this Plan. An employee shall be eligible to participate in the Plan upon the earlier of completion of not less than one year of continuous service with BNSF Railway or a 12-month period,
computed with reference to the date on which the employees employment commenced, and anniversaries thereof, during which the employee has not less than 1,000 hours of service, or a shorter period of participation service that an applicable
collective bargaining agreement may provide for an eligible employee.
Eligible employees may become participants in the Plan by
authorizing regular payroll deductions and designating an allocation method for such deductions.
Employee eligibility for the BLET
contribution is based on employees who received earnings in the engineers craft and did not terminate employment with BNSF Railway for reasons other than death or retirement.
5
BNSF RAILWAY COMPANY NON-SALARIED
EMPLOYEES 401(k) RETIREMENT PLAN
Notes to Financial Statements (continued)
Contributions
Compensation, as generally defined under the Plan, is the total of salary and other amounts received for personal services rendered as an
eligible employee, excluding disciplinary or judicially ordered back pay awards, severance benefits, bonuses and certain other payments set forth in the Plan. The Plan provides that the annual compensation of each employee taken into account under
the Plan for any year may not exceed a limitation pursuant to requirements of the Internal Revenue Code (IRC). During 2019, the limitation was $280 thousand. The maximum limitation on combined total
before-tax and after-tax employee contributions (other than catch-up contributions) is 25% of compensation or such other maximum
amount provided in an applicable collective bargaining agreement. All employee-elected contributions are made by means of regular payroll deductions.
BNSF Railway matches 25% of the first 4% of employee-elected before-tax contributions and/or Roth
contributions for each pay period for employees whose collective bargaining agreement provides for a BNSF Railway match. Matching contributions are made in cash, as soon as practicable after the end of each pay period.
In addition, certain participants may elect to have BNSF Railway make sick leave deposits into the Plan in lieu of compensation for unused
sick time in accordance with an agreement between BNSF Railway and the Transportation-Communications International Union.
The BLET
contribution provides a single vested contribution equal to 25% of 1% of the qualified earnings for each employee in the engineers craft during the preceding calendar year. Qualified earnings include gross earnings paid in the engineers
craft and any profit-sharing payment made to the eligible employee, including any deferrals made under this Plan, and excluding certain retroactive payments.
During the 2019 Plan year, in accordance with the provisions of the IRC, no participant could elect more than $25 thousand in before-tax and/or Roth after-tax contributions, which included a $6 thousand limit for catch-up contributions for participants age
50 or older before the close of the Plan year. This limitation does not include BNSF Railways matching contributions. In addition, the Plan provides that annual contributions for highly-compensated employees (as defined by the IRC) may be
limited based on the average rate of contributions for lower-compensated employees. In no event may the total of employee-elected pre-tax contributions, employee
after-tax contributions, and BNSF Railways matching contributions exceed the lesser of $56 thousand ($62 thousand including catch-up contributions) or
100% of a participants compensation, as defined in IRC Section 415(c)(3), for any participant in a calendar year, subject to certain cost-of-living
adjustments. Contributions with respect to any participant may be further reduced to the extent necessary to prevent disqualification of the Plan under Section 415 of the IRC, which imposes additional limitations on contributions and benefits
with regard to employees who participate in other qualified plans.
Participant Accounts
Each participants account is credited with the participants elective contributions, BNSF Railway matching contributions, interest,
dividends and gains and losses attributable to such contributions. The benefit to which a participant is entitled is limited to the participants vested account balance.
Participants may direct the investment of their account balances into investment options offered by the Plan. At December 31, 2019, the
Plan offers a company stock fund (the Company Stock Fund) which consists of Berkshire Hathaway Inc. (Berkshire) Class B common stock (BNSF is a wholly-owned, indirect subsidiary of Berkshire), six mutual funds, sixteen common / collective
trusts and a stable value fund as investment options for participants, all of which are held by the Master Trust.
Participants may
allocate both elective and employer contributions to any or all of the investment options in multiples of 1%. Participants may reallocate amounts from one investment option to another on a daily basis within certain guidelines as described in the
Plan document and the relevant investment prospectus.
No investment election or interfund transfer may result in the investment of more
than 20% of the value of a participants account in the Company Stock Fund. Investment election funds that exceed the 20% limit are invested in a target retirement trust designed for investors planning to retire on a date closest to the
participants 65th birthday.
6
BNSF RAILWAY COMPANY NON-SALARIED
EMPLOYEES 401(k) RETIREMENT PLAN
Notes to Financial Statements (continued)
Vesting
Participants are immediately vested in their elective contributions plus any income or loss thereon. BNSF Railways matching
contributions become fully vested in accordance with the following schedule:
|
|
|
|
|
|
|
|
Number of Years of Vesting Service*
|
|
Vested Percentage
|
|
|
Less than 1 year
|
|
|
|
0
|
%
|
1 year but less than 2 years
|
|
|
|
20
|
%
|
2 years but less than 3 years
|
|
|
|
40
|
%
|
3 years but less than 4 years
|
|
|
|
60
|
%
|
4 years but less than 5 years
|
|
|
|
80
|
%
|
5 years or more
|
|
|
|
100
|
%
|
* The term Vesting Service is defined as the number of plan years in which the participant is
compensated for at least 1,000 hours of work by BNSF Railway, in any capacity.
Participants are immediately vested in any BLET
contributions.
Notes Receivable from Participants
Participants may borrow from their accounts a minimum of $1 thousand up to a maximum equal to the lesser of $50 thousand or 50% of
their vested account balance. Participants may have up to two loans outstanding at any time. Loan transactions are treated as a transfer to (from) the investment fund from (to) the participant loan account. Loan terms can be up to five years, or
fifteen years for the purchase of a primary residence. The loans are collateralized by the balance in the participants account and bear fixed interest at the prime rate as of the first business day of the quarter in which the loan is made plus
1%. Interest rates on loans outstanding as of December 31, 2019 and 2018, range from 4.25% to 10.50%. Principal and interest are paid ratably through payroll deductions for active employees.
Benefit Payments to Participants
Subject to certain Plan and IRC restrictions, a participant may, at any time, elect to withdraw all or a specified portion of the value of the
participants account in the Plan, including vested BNSF Railways matching contributions. Both the Plan and the IRC allow a participant who has not attained age 591⁄2 to withdraw the participants pre-tax and Roth after-tax contributions only in the event of hardship (as defined in the Plan).
Earnings on pre-tax contributions credited after December 31, 1988, are not available for withdrawal for hardship.
No distribution from the Plan, unless in the event of hardship or attainment of age 591⁄2, will be made until a participant retires, dies (in which case, payment shall be made to his or her beneficiary), becomes disabled or otherwise terminates employment with BNSF Railway.
By law, a distribution of benefits must occur or commence no later than April 1 of the calendar year following the later of the year when
a participant attains age 701⁄2 or retires. In the event of the death of a participant, the participants account is distributed to their beneficiary.
Immediate lump-sum distributions are required in the case of accounts valued at up to $5 thousand. Mandatory lump-sum distributions which are greater than
$1 thousand will be transferred to an individual retirement account for the benefit of the participant unless the participant elects to receive the distribution directly or roll-over the distribution into another eligible retirement plan.
7
BNSF RAILWAY COMPANY NON-SALARIED
EMPLOYEES 401(k) RETIREMENT PLAN
Notes to Financial Statements (continued)
Forfeited Accounts
The Plan provides for the forfeiture of nonvested BNSF Railway matching contributions related to terminated employees. Forfeitures shall be
used in the following order (as described by the Plan document):
|
First, to restore previously forfeited amounts of other participants who have resumed employment with BNSF
Railway;
|
|
Second, to offset future BNSF Railway matching contributions; and
|
|
Finally, to pay administrative expenses of the Plan.
|
Forfeitures of $39 thousand were used to offset BNSF Railway matching contributions in 2019. At December 31, 2019 and 2018, unused
forfeited balances totaled $3 thousand and $24 thousand, respectively.
Plan Amendment and Termination
The Plan may be amended at any time. No such amendment, however, may adversely affect the rights of participants in the Plan with respect to
contributions made prior to the date of the amendment. BNSF Railway matching contributions may be discontinued and participation by BNSF Railway in the Plan may be terminated at any time at the election of BNSF Railway. In the event the Plan is
terminated, each participant shall receive the full amount of Plan assets in their respective accounts.
The Plan is subject to the
provisions of ERISA applicable to defined contribution plans. The Plan provides for an individual account for each participating employee. Plan benefits are based solely on the amount contributed to the participating employees account plus any
income, expenses, gains and losses attributed to such account. Consequently, Plan benefits are not insured by the Pension Benefit Guaranty Corporation pursuant to Title IV of ERISA.
Voting Rights
Each
participant is entitled to exercise voting rights attributable to the shares of Berkshires Class B common stock allocated to the participants account.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies, which conform with accounting principles generally accepted in the United States of America (GAAP) and with
the requirements of ERISA, have been used consistently in the preparation of the Plans financial statements.
Basis of
Accounting
The Plans financial statements have been prepared under the accrual basis of accounting in accordance with GAAP.
Authoritative accounting guidance requires investment contracts held by a defined contribution plan to be reported at fair value.
However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount
participants would receive if they were to initiate a permitted withdrawal transaction under the terms of the Plan. The Plan invests in investment contracts through the Master Trust. The Statements of Net Assets Available for Benefits present the
fair value of the investment in the Master Trust as well as the contract value relating to investment contracts. The Statement of Changes in Net Assets Available for Benefits is prepared on a contract value basis.
Use of Estimates
The
preparation of financial statements 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 additions and deductions during the reporting period. Actual results could differ from these estimates.
8
BNSF RAILWAY COMPANY NON-SALARIED
EMPLOYEES 401(k) RETIREMENT PLAN
Notes to Financial Statements (continued)
Income Recognition
Purchases and sales of investments are recorded on a trade-date basis. Interest income is recorded when earned. Dividend income is recorded on
the ex-dividend date. Capital gain distributions are included in dividend income. Net appreciation or depreciation in the fair value of investments consists of realized and unrealized gains and losses on
investments.
Risks and Uncertainties
The Plan provides for various investment options that include stocks, mutual funds, common / collective investment trusts and other 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 Plans financial statements.
Benefit Payments to Participants
Benefits are recorded when paid.
Transfers
BNSF sponsors
the Salaried Plan that also participates in the Master Trust along with the Plan. If a participants union status changes, he may elect to transfer his account balance into the corresponding plan.
Recent Accounting Pronouncements
In February 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2017-06, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): Employee Benefit Plan Master
Trust Reporting. This ASU requires a plans interest in a master trust and any change in that interest to be presented in separate line items in the Statements of Net Assets Available for Benefits and in the Statement of Changes in Net
Assets Available for Benefits, respectively. This ASU also requires all plans to disclose the dollar amount of their investments measured at fair value by general type of investment and the investments and other assets and liabilities of the master
trust, as well as the dollar amount of its interest in these balances. The Plan adopted the ASU for year ended December 31, 2019, and its provisions were applied retrospectively.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820):
Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in the ASU modify the disclosure requirements related to fair value measurements. Disclosure requirements will be eliminated
regarding transfers between Level 1 and Level 2 of the fair value hierarchy as well as policies related to the timing of transfers between levels and the valuation processes for Level 3 measurements. Disclosure requirements will be
modified regarding Level 3 fair value measurements, net asset value disclosure of estimates of timing of future liquidity events, and measurement uncertainty. New disclosure requirements will be added regarding changes in unrealized gains or
losses included in other comprehensive income for recurring Level 3 fair value measurements and regarding the range and weighted average used to develop significant unobservable inputs for Level 3 measurements. This ASU is effective for
fiscal years beginning after December 15, 2019. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The Plan is currently evaluating the effect this standard will have on the financial statements.
9
BNSF RAILWAY COMPANY NON-SALARIED
EMPLOYEES 401(k) RETIREMENT PLAN
Notes to Financial Statements (continued)
NOTE 3 - FAIR VALUE MEASUREMENTS
The Plans interest in the Master Trust is stated at fair value for all investments other than fully benefit-responsive investment
contracts, which are stated at contract value. Various inputs are used to determine the fair value of the Plans investments which can be categorized into the following three levels:
Level 1 - Quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access at the measurement
date.
Level 2 - Other inputs that are observable for the asset or liability, either directly or indirectly, such as quoted prices
for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations in which all significant inputs are observable.
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
The fair value of the Plans interest in the Master Trust is based on the underlying participant-directed investment options. The
investments held by the Master Trust are valued as follows:
(1) Investments in mutual funds are valued based on quoted
prices from the public exchanges on which the funds are actively traded, which is classified as Level 1 in the hierarchy.
(2) The Company Stock Fund is a unitized stock fund and operates similar to a mutual fund in that the value of a unit reflects
the combined value of underlying stock and a small amount of cash equivalents that are included to allow for the regular processing of transactions. The common stock portion of the fund is valued based on the closing price as reported on the New
York Stock Exchange, which is classified as a Level 1 in the hierarchy. The cash equivalent portion is held in a money market fund and is also classified as Level 1 in the hierarchy.
(3) Common / collective trusts are valued based on the calculated net asset value of the respective investment entity.
Although the trusts themselves are not publicly traded, the underlying assets are actively traded on exchanges and price quotes for the assets held by these trusts are readily available. Additionally, the net asset value per share is determined and
published daily and is the basis for current transactions. These investments are classified as Level 2 in the hierarchy.
The
following table summarizes the Plans investments at fair value as of December 31, 2019, based on the valuation inputs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Level 1
Inputs
|
|
|
|
|
Level 2
Inputs
|
|
Mutual Funds
|
|
$
|
|
|
807,244
|
|
|
$
|
|
|
807,244
|
|
|
$
|
|
|
|
|
Company Stock Fund
|
|
|
|
|
321,905
|
|
|
|
|
|
321,905
|
|
|
|
|
|
|
|
Common / Collective Trusts
|
|
|
|
|
1,791,238
|
|
|
|
|
|
|
|
|
|
|
|
1,791,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
$
|
|
|
2,920,387
|
|
|
$
|
|
|
1,129,149
|
|
|
$
|
|
|
1,791,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments of the Plan as of December 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Investments at fair value
|
|
$
|
|
|
2,920,387
|
|
Investments at contract value
|
|
|
|
|
410,384
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
3,330,771
|
|
|
|
|
|
|
|
|
10
BNSF RAILWAY COMPANY NON-SALARIED
EMPLOYEES 401(k) RETIREMENT PLAN
Notes to Financial Statements (continued)
The following table summarizes the Plans investments at fair value as of
December 31, 2018, based on the valuation inputs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Level 1
Inputs
|
|
|
|
|
Level 2
Inputs
|
|
Mutual Funds
|
|
$
|
|
|
674,255
|
|
|
$
|
|
|
674,255
|
|
|
$
|
|
|
|
|
Company Stock Fund
|
|
|
|
|
308,871
|
|
|
|
|
|
308,871
|
|
|
|
|
|
|
|
Common / Collective Trusts
|
|
|
|
|
1,406,645
|
|
|
|
|
|
|
|
|
|
|
|
1,406,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
$
|
|
|
2,389,771
|
|
|
$
|
|
|
983,126
|
|
|
$
|
|
|
1,406,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments of the Plan as of December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Investments at fair value
|
|
$
|
|
|
2,389,771
|
|
Investments at contract value
|
|
|
|
|
409,519
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
2,799,290
|
|
|
|
|
|
|
|
|
NOTE 4 - INVESTMENT IN MASTER TRUST
All of the Plans investments are in the Master Trust, which was established for the investment of assets of the Plan and of the Salaried
Plan of BNSF. Each participating retirement plan has an undivided interest in the Master Trust. The assets of the Master Trust are held by the Trustee.
The following table presents the total of investments in the Master Trust (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
Master Trust
|
|
|
|
|
Plans
Investment
|
|
|
|
|
Master Trust
|
|
|
|
|
Plans
Investment
|
|
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds
|
|
$
|
|
|
1,277,756
|
|
|
$
|
|
|
807,244
|
|
|
$
|
|
|
1,070,257
|
|
|
$
|
|
|
674,255
|
|
Company Stock Fund
|
|
|
|
|
502,386
|
|
|
|
|
|
321,905
|
|
|
|
|
|
484,941
|
|
|
|
|
|
308,871
|
|
Common / Collective Trusts
|
|
|
|
|
2,747,113
|
|
|
|
|
|
1,791,238
|
|
|
|
|
|
2,159,814
|
|
|
|
|
|
1,406,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments measured at fair value
|
|
|
|
|
4,527,255
|
|
|
|
|
|
2,920,387
|
|
|
|
|
|
3,715,012
|
|
|
|
|
|
2,389,771
|
|
Investments measured at contract value
|
|
|
|
|
675,132
|
|
|
|
|
|
410,384
|
|
|
|
|
|
670,020
|
|
|
|
|
|
409,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
5,202,387
|
|
|
$
|
|
|
3,330,771
|
|
|
$
|
|
|
4,385,032
|
|
|
$
|
|
|
2,799,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plans Percentage of Investment in Master Trust Net Assets
|
|
|
|
|
|
|
|
|
|
|
64%
|
|
|
|
|
|
|
|
|
|
|
|
64%
|
|
11
BNSF RAILWAY COMPANY NON-SALARIED
EMPLOYEES 401(k) RETIREMENT PLAN
Notes to Financial Statements (continued)
Investment income for the Master Trust was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
2019
|
|
Investment income:
|
|
|
|
|
|
|
Net investment appreciation
|
|
$
|
|
|
796,763
|
|
Interest and dividend income
|
|
|
|
|
81,293
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
878,056
|
|
|
|
|
|
|
|
|
Plans investment income in the Master Trust
|
|
|
|
|
564,203
|
|
Plans percentage of investment income from the Master Trust
|
|
|
|
|
64
|
%
|
The Master Trusts investment at contract value is a stable-value fund, which invests in traditional and
alternative guaranteed investment contracts (GICs). GICs are contracts between an issuer and the Plan that provide for a fixed return on principal amounts invested over a fixed period of time. GICs are valued at contract value and, as required by
authoritative accounting guidance, the Statements of Net Assets Available for Benefits presents the contract value of the GIC.
Alternative GICs (a form of wrap contract) are typically paired with an underlying single or multiple high-quality fixed income investments,
fixed income mutual funds, or with units of a collective trust bond portfolio. The wrap contract is owned by the Plan while the underlying investments may or may not be owned by the Plan, depending on the contract. Wrap contracts are issued by
insurance or financial services institutions. Investment gains and losses are amortized over the expected duration of the underlying investments of that contract through the calculation of an interest rate applicable to the contract on a prospective
basis. The wrap contracts provide for a variable crediting rate, which typically resets quarterly, and the issuer of the wrap contract provides assurance that future adjustments to the crediting rate cannot result in a crediting rate less than zero.
The wrap contract crediting rate is typically based on the current
yield-to-maturity of the covered investments, plus or minus an amortization of the difference between the market value and contract value of the covered investments over
the duration of the covered investments at the time of computation. The crediting rate is affected by the change in the annual effective yield-to-maturity of the
underlying securities, and is also affected by the differential between the contract value and the market value of the covered investments. In addition, changes in duration from reset period to reset period can affect the crediting rate.
Certain events can limit the ability of the Plan to transact at contract value. Such events can include, but are not limited to, the
following: (i) complete or partial Plan termination or merger with another plan; (ii) changes to the Plans prohibition on competing investment options or deletion of equity wash provisions; (iii) bankruptcy of BNSF Railway or
other BNSF Railway events (e.g., divestitures or spin-off of a subsidiary) which cause a significant withdrawal from the Plan; or (iv) the failure of the Plan or Master Trust to qualify for exemption from
federal income taxes or any required prohibited transaction exemption under ERISA. The Plan Administrator does not believe that the occurrence of any such event, which would limit the Plans ability to transact at contract value with
participants, is probable.
Investment contracts generally impose conditions on the Plan. If an event of default occurs and is not cured,
the issuer may terminate the contract. These events may include: (i) a breach of material obligation under the contract; (ii) a material misrepresentation; or (iii) a material amendment to the Plan agreement that is not approved and
accepted by the issuer. The Plan may terminate wrap contracts at any time with notice, subject to certain conditions. Other than for reasons of Plan default, wrap contract issuers may generally only terminate contracts upon the completion of certain
contract requirements, such as completion of a specified period of time.
12
BNSF RAILWAY COMPANY NON-SALARIED
EMPLOYEES 401(k) RETIREMENT PLAN
Notes to Financial Statements (continued)
If, in the event of default of an issuer, the Plan was unable to obtain a replacement
investment contract, the Plan may experience losses if the value of the Plans assets no longer covered by the contract is below contract value. The Plan may seek to add additional issuers over time to diversify the Plans exposure to such
risk, but there is no assurance that the Plan may be able to do so. The combination of the default of an issuer and an inability to obtain a replacement agreement could render the Plan unable to achieve its objective of maintaining a stable contract
value. Contract termination occurs whenever the contract value or market value of the covered investments reaches zero or upon certain events of default. If the contract terminates due to issuer default, the issuer will generally be required to pay
to the Plan the excess, if any, of contract value over market value on the date of termination. If the contract terminates when the market value equals zero, the issuer will pay the excess of contract value over market value to the Plan to the
extent necessary for the Plan to satisfy outstanding contract value withdrawal requests.
As described in Note 2, because the investment
contracts are fully benefit-responsive, contract value is the relevant measurement attribute for that portion of the net assets available for benefits attributable to the investment contracts. Contract value 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.
Net assets and net investment income/loss are allocated to participating plans based on number of units owned.
NOTE 5 - RELATED PARTY AND PARTY-IN-INTEREST TRANSACTIONS
Certain Plan investments held in the Master Trust are shares of mutual funds managed by the Trustee. The Plan also invests in the Class B
common stock of Berkshire, a related party, through the Company Stock Fund, which is also held in the Master Trust. The Master Trust recorded purchases of $32 million and sales of $65 million of Berkshire Class B common stock during
the year ended December 31, 2019. Transactions in such investments qualify as party-in-interest transactions, which are exempt from the prohibited transaction
rules.
Notes receivable from participants are also considered
party-in-interest transactions.
Administrative expenses
of the Plan, except for certain participant loan fees and Qualified Domestic Relations Order fees, are paid by BNSF Railway. For the year ended December 31, 2019, BNSF Railway paid $1.3 million in administrative expenses on behalf of the
Plan.
NOTE 6 - INCOME TAX STATUS
The Internal Revenue Service determined and informed BNSF Railway by letter dated May 21, 2018, that the Plan was qualified under IRC
Section 401(a). The Plan has subsequently been amended and restated since receiving the determination letter; however, the Plan Administrator and tax counsel believe the Plan is designed and is currently operating in compliance with the
applicable requirements of the IRC. Therefore, no provision for income taxes has been included in the Plans financial statements.
In accordance with IRC Section 401(k), amounts deducted from participants salaries as
before-tax contributions are not income taxable to the participants until withdrawn or distributed. Non-Roth after-tax
contributions are not subject to taxation upon withdrawal or distribution. Roth after-tax contributions and earnings are not subject to taxation upon withdrawal or distribution.
GAAP requires management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an
uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan sponsor 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 that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no
audits for any tax periods in progress.
13
BNSF RAILWAY COMPANY NON-SALARIED
EMPLOYEES 401(k) RETIREMENT PLAN
Notes to Financial Statements (continued)
NOTE 7 - RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The financial statements of the Plan include distributions to participants as deductions when paid. The Department of Labor requires
participant loans that violate the IRC to be recorded as deemed distributions on the Form 5500, although the Plan still holds the participant loans as an asset.
The following is a reconciliation of net assets available for benefits from the financial statements to the Form 5500 (in thousands):
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|
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|
|
|
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As of December 31,
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2019
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2018
|
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Net assets available for benefits from the financial statements
|
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$
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|
|
|
3,483,522
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|
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$
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|
|
|
|
2,945,834
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Participant loans reduced by current year deemed distributions
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|
|
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|
(1,814)
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|
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|
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(1,696)
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Participant loans reduced by deemed distributions in prior years and currently
outstanding
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(12,779)
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(12,728)
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|
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|
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Net assets available for benefits from the Form 5500
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$
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3,468,929
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$
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|
|
|
|
2,931,410
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|
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The following is a reconciliation of the change in net assets available for benefits from the financial
statements to the Form 5500 (in thousands):
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Year Ended
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|
|
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|
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December 31, 2019
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Net increase in net assets available for benefits per the financial statements
|
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$
|
|
|
|
|
537,688
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Deemed distributions of participant loans for the current year
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|
|
|
|
|
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(1,814)
|
|
Deemed distributions of participant loans for the prior year
|
|
|
|
|
|
|
1,645
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|
|
|
|
|
|
|
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|
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Net increase in net assets available for benefits per the Form 5500
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$
|
|
|
|
|
537,519
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NOTE 8 - SUBSEQUENT EVENTS
On March 11, 2020, the World Health Organization declared the global outbreak of
COVID-19 to be a pandemic. COVID-19 has negatively impacted the world economy, and as a result, prices of most investment funds and stocks declined, although
subsequently they have recovered significantly. The Plans investments are valued as of December 31, 2019, and their stated values in these financial statements may be different than the current market price. The COVID-19 pandemic continues to rapidly evolve, and the extent to which it may impact the Plans net assets available for benefits and changes in net assets available for benefits are uncertain.
14
BNSF RAILWAY COMPANY NON-SALARIED
EMPLOYEES 401(k) RETIREMENT PLAN
SCHEDULE H, Line 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
AS OF DECEMBER 31, 2019
(Dollars in thousands)
Column (d) is excluded from the presentation, as all investing activity is participant-directed; therefore, no
disclosure of cost information is required.