NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE PLAN
General
The Teradata Savings Plan (the “Plan”) is a defined contribution plan established on October 1, 2007, by the Board of Directors of Teradata Corporation (“Teradata” or the “Company”). The Plan is designed to qualify as a profit-sharing plan with a qualified cash or deferred arrangement under Section 401(k) of the Internal Revenue Code of 1986, as amended. It is also subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
Eligibility
The Plan covers substantially all eligible U.S. employees of the Company (other than certain categories of part-time, temporary, and intern employees) beginning on the first day of employment.
Contributions and Funding
All eligible employees of the Company may defer a portion of their compensation by making tax-deferred contributions, as well as after-tax contributions, to the Plan. Participants may elect to contribute up to fifty percent of their eligible compensation, up to certain Internal Revenue Service (“IRS”) limits. Maximum contribution percentage limits are also imposed on the tax-deferred contributions and after-tax contributions made by participants with prior year compensation of $120,000 and over. Annual tax-deferred contributions per participant for the 2019 Plan year were limited to $19,000.
For each dollar contributed by a participant, up to a maximum six percent of compensation, the Company funds an additional matching amount. The employer matching contribution for all participants is one hundred percent of the first four percent of pay contributed by the participant, plus fifty percent of the next two percent of pay.
The Plan allows employees aged 50 and older to elect to make additional catch-up contributions, subject to IRS limits. Catch-up contribution amounts are not eligible for employer matching contributions. The annual limit on catch-up contributions was $6,000 in 2019.
Participants direct their contributions, as well as the Company’s matching contributions, among various investment options, including target date funds, market index funds, actively managed funds, self-directed brokerage fund, and the Teradata Unitized Stock Fund, which invests primarily in Teradata Common Stock.
Vesting and Forfeitures
Participants are immediately vested in their contributions plus actual earnings on their contributions. Company matching contributions vest in increments of one-fifth each year, over a five-year period beginning with the participant’s hire date.
Participants become immediately and fully vested in their account (i) upon attainment of age 65, (ii) upon termination of employment due to a “reduction in force,” (iii) in the event of death, or (iv) in the event of total and permanent disability. Upon termination of employment, participants are entitled to full distribution of their contributions and all vested Company matching contributions; all non-vested Company matching contributions are forfeited. These forfeitures are reallocated and used to either reduce future Company matching contributions or pay certain administrative expenses of the Plan. During the Plan year, forfeitures used to offset Company matching contributions were $1,681,605. The amounts of unallocated forfeitures at December 31, 2019 and 2018, were $977,905 and $717,458, respectively.
Participant Accounts
Each participant’s account is credited with the participant’s contributions, Company contributions, and Plan earnings. Participants’ accounts are valued on a daily basis. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account balance.
Notes Receivable from Participants
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to $50,000 or 50% of their vested account balance, whichever is less. The loans are collateralized by 50% of the vested balance in the participant’s accounts and bear interest at a fixed rate based on the prime rate in effect on the last day of the preceding month plus 1%, using the prime rate reported by Reuters. The term of the loan may be between one and five years. Principal and interest are paid
ratably through bi-weekly payroll deductions. Upon default, participants are considered for tax purposes to have received a distribution and are subject to income taxes on the outstanding amount of the loan at the time of default. Participant loan interest rates range from 4.25% - 6.50% .
Withdrawals and Benefits
Participants may withdraw any employee tax-deferred contributions during their employment in the case of a “hardship” (as defined by the Plan), in the case of a qualified reservist called to active duty, or in the case of absence from employment due to qualified military service for more than 30 days, and participants may withdraw after-tax employee contributions (plus earnings) for any reason. Participants may not withdraw any Company matching contributions or any earnings on Company matching contributions until they attain age 59 1/2 or terminate employment with the Company. Participants may withdraw vested balances upon reaching age 59 1/2, or upon termination of employment.
Upon termination of employment, a participant receives a lump-sum amount equal to the value of the vested portion of their account if it is less than $1,000 (unless the participant chooses a direct rollover within 90 days). Terminated participants with more than $1,000 in vested benefits may elect to receive a direct rollover to another tax-qualified plan or IRA, a lump-sum payment or quarterly cash installments, or, if the participant has not attained age 70 1/2, may leave the vested benefits within the Plan until reaching age 70 1/2. Upon the death of a participant, the participant’s beneficiary shall be eligible to receive a distribution of the participant’s account.
Termination of the Plan
The Company currently has no plans to terminate the Plan; however, the Company reserves the right to terminate the Plan at any time by action of the Teradata Board of Directors. If the Plan is terminated, amounts allocated to a participant’s account become fully vested.
Plan Expenses
A portion of the Plan’s administrative expenses are paid by Teradata. However, at the Company’s discretion, Teradata may choose to utilize available revenue credits, based on a revenue sharing program between Teradata and Fidelity Investments (“Fidelity”), to offset expenses related to the administration of the Plan.
Payments to Withdrawing Participants
The Plan records payments to withdrawing participants at the time of disbursement.
Rollover Contributions
Participant rollover contributions are included as participant contributions in the statement of changes in net assets available for benefits.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The financial statements of the Plan are prepared under the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and changes therein. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plan’s investments are stated at fair value. Investments in mutual funds and common/collective trusts are valued at the closing net asset values of the funds on the last day of the Plan fiscal year. Teradata Corporation common stock is valued at the last quoted sales price on the New York Stock Exchange on the last business day of the Plan fiscal year.
Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date. Realized and unrealized gains and losses from security transactions are reported on the average cost method. Investment contracts held by a defined-contribution plan are required to be reported at fair value.
Notes Receivable from participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued (unpaid) interest. Delinquent loans are treated as distributions based on the terms of the Plan document. No allowance for credit losses has been recorded as of December 31, 2019 or 2018.
Risk and Uncertainties
The Plan provides for various investment options in several investment securities and instruments. 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 risks in the near term would materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.
Some plan participants chose to invest a portion of their account assets in Teradata Corporation common stock. Those participants are exposed to potentially significant changes in the market value of the stock.
3. FAIR VALUE MEASUREMENTS
The Plan follows the accounting standard dealing with fair value measurements for financial and non-financial assets and liabilities recorded at fair value on a recurring basis, wherein a three-tier fair value hierarchy prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, quoted prices in active markets for similar assets or liabilities, or quoted prices in less-active markets for identical assets; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2019 and 2018.
Common stocks, mutual funds, and money market funds: Values derived from quoted market prices in active markets.
Common/collective trust funds: Valued at the net asset value (“NAV”) of shares held by the Plan at year end, as reported to the Plan by the trustee, which represents the fair value of shares held by the Plan. A fund’s NAV reflects an exit price, is the same for all holders of the fund, and provides the basis for current transactions. This practical expedient would not be used if it is determined to be probable that the fund will sell the investment for an amount different from reported net asset value. Participant transactions (purchases and sales) may occur daily.
The following tables set forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of December 31:
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2019
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Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
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Significant
Other
Observable
Inputs
(Level 2)
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Unobservable
Inputs
(Level 3)
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|
Mutual funds
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$
|
222,172,996
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$
|
222,172,996
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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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|
Teradata Corporation common stock
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16,330,128
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16,330,128
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—
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—
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Money market funds
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59,044,263
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59,044,263
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—
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|
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—
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Self-directed brokerage securities
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117,620,302
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117,620,302
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—
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—
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Investments measured at fair value
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415,167,689
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$
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415,167,689
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$
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—
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$
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—
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Investments measured at NAV
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706,267,382
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Total investments, at fair value
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$
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1,121,435,071
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2018
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Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
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Significant
Other
Observable
Inputs
(Level 2)
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Unobservable
Inputs
(Level 3)
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Mutual funds
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$
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197,233,685
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$
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197,233,685
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$
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—
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$
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—
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Teradata Corporation common stock
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23,872,732
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23,872,732
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—
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—
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Money market funds
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36,753,065
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36,753,065
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|
|
—
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|
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—
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Self-directed brokerage securities
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109,210,483
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|
|
109,210,483
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|
|
—
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|
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—
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Investments measured at fair value
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367,069,965
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|
$
|
367,069,965
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|
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$
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—
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$
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—
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Investments measured at NAV
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648,791,647
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Total investments, at fair value
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$
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1,015,861,612
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The following tables set forth a summary of the Plan's investment in common collective trust funds, reported at net asset value ("NAV") as of December 31:
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Investment
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2019 Fair Value
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2018 Fair Value
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Unfunded Commitment
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Redemption Frequency
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Redemption Notice Period
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Alliance Bernstein Global Real Estate Securities Collective Trust
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$
|
22,122,773
|
|
|
$
|
19,865,445
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N/A
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Daily
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(1)
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Fidelity Contrafund - Commingled Pool
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80,089,766
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70,351,509
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N/A
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Daily
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N/A
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Fidelity Managed Income Portfolio
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—
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24,002,739
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N/A
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Daily
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(2)
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JPMCB Diversified Commercial Property
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24,567,042
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|
|
23,652,059
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|
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N/A
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Daily
|
|
N/A
|
|
Northern Trust MSCI All Country World Index NL Collective
|
|
—
|
|
|
11,631,486
|
|
|
N/A
|
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Daily
|
|
N/A
|
|
Northern Trust Russell 2000 Index Fund NL Tier 3
|
|
90,776,585
|
|
|
75,622,369
|
|
|
N/A
|
|
Daily
|
|
N/A
|
|
Northern Trust Collective Russell 3000 Index Fund - NL Tier 3
|
|
—
|
|
|
28,798,329
|
|
|
N/A
|
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Daily
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|
N/A
|
|
Northern Trust Collective Daily S&P 500® Equity Index Fund NL Tier 4
|
|
339,691,235
|
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|
260,630,395
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N/A
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Daily
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N/A
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|
Northern Trust Collective Aggregate Bond Index NL Fund Tier 3
|
|
108,037,102
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|
106,020,514
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N/A
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Daily
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|
N/A
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Northern Trust Collective ST Govt Bond Index Fund NL Tier J
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2,680,206
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|
2,896,395
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N/A
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Daily
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N/A
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Northern Trust Collective TIPS 1-10 YR Index Fund NL Tier 3
|
|
25,747,582
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|
25,320,407
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N/A
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Daily
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|
N/A
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|
Northern Trust MSCI All Country World (ACWI) ex NL
|
|
12,555,091
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|
|
—
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|
N/A
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Daily
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|
N/A
|
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Total
|
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|
$
|
706,267,382
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|
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$
|
648,791,647
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(1) A withdraw of substantially all of the Plan assets requires a 30 day notice.
(2) The required 90 day notice period for redemption was provided and there were no early-termination penalties charged.
4. RELATED PARTY TRANSACTIONS (PARTIES-IN-INTEREST)
Related party transactions consisted of loans made to participants and investments in Teradata Corporation common stock. At December 31, 2019, the Plan held 610,016 shares of Teradata common stock valued at $16,330,128. At December 31, 2018 the Plan held 622,334 shares of Teradata common stock valued at $23,872,732. Fidelity serves as a manager of certain Plan investments. An affiliate of Fidelity serves as the record keeper for the Plan’s participant data. Another affiliate of Fidelity serves as the trustee of the Plan. Additionally, Alliance Bernstein Trust Company, LLC is a party in interest serving as custodian of target date funds. The cash receipts from Fidelity and cash disbursements from these investments constitute related party transactions. None of these related party transactions are prohibited transactions as defined under ERISA. Administrative expenses, net of revenue credits, were $367,574 during 2019.
5. TAX STATUS
The Plan received a favorable determination letter dated March 22, 2017, from the Internal Revenue Service as to the qualified status of the Plan under Section 401(a) of the Internal Revenue Code (“the Code”). The Plan was amended on effective July 1, 2017. Therefore, the Plan is qualified and the related Trust is exempt from federal income taxes under Section 501(a) of the Code. Accordingly, income taxes are not provided for in the accompanying financial statements. Participant contributions, except for those contributions which participants elect to be tax-deferred under Section 401(k), are taxable to the participants in the year their contributions are made.
Participants are liable for federal income taxes relative to their Section 401(k) pre-tax contributions, the Company matching contributions, and the earnings of the Plan when the contributions are distributed to them.
The Plan administrator evaluated the Plan’s tax positions and concluded that there are no uncertain tax positions that require recognition or disclosure in the financial statements. The Plan is subject to tax examinations by tax authorities for all open Plan years.
6. SUBSEQUENT EVENTS
Teradata has evaluated all subsequent events through the date these statements were issued and filed with the United States Securities and Exchange Commission ("SEC"). On January 30, 2020, the World Health Organization ("WHO") announced a global health emergency stemming from a new strain of coronavirus that was spreading globally (the "COVID-19 outbreak"). On March 11, 2020, the WHO classified COVID-19 outbreak as a pandemic, triggering volatility in financial markets and a significant negative impact on the global economy. The financial effect on the Plan is not included in the financial statements as of and for the year ended December 31, 2019.
As a result of the COVID-19 pandemic, on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act provides immediate and temporary relief for Plan participants with respect to their distributions and loans. Teradata has elected to adopt the following provisions:
•For COVID-19 related distributions made before December 31, 2020, the maximum distribution is the lesser of the vested portion of the participant's account balance in the Plan, except for assets held in self-directed brokerage accounts, or $100,000. Participants may repay a COVID-19 related distribution at any time during the three-year period beginning on the day after the date on which the distribution was received.
•For individuals with outstanding loans, loan repayments during the period March 27, 2020 through December 31, 2020, are deferred through December 31, 2020. The term of the loan will be extended by the length of the deferment period. Subsequent repayments will be adjusted to include accrued interest during the deferment period.
•For COVID-19 related loans made to qualified individuals, from March 27, 2020 through September 22, 2020, the maximum loan is the lesser of the vested portion of the participant's account balance in the Plan, reduced by the participant’s highest outstanding loan balance during the prior 12 months, or $100,000. All repayments for COVID-19 related loans are deferred through December 31, 2020 and the first payment will begin on or after January 2021. The term of the loan will be extended by the length of the deferment period. Repayments will be adjusted to include accrued interest during the deferment period.
•Required minimum distributions are suspended in 2020, unless the participant requests to receive such distributions.