All other schedules required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974 (“ERISA”) have been omitted because they are not applicable.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
|
1.
|
DESCRIPTION OF THE PLAN
|
The following description of the AXA Equitable 401(k) Plan (the
“Plan”) sponsored by AXA Equitable Life Insurance Company (“AXA Equitable” or the “Company”) is provided for general information purposes only. Participants should refer to the Plan document for more complete
information.
General
The Plan is a defined contribution plan with a cash or deferred arrangement providing benefits for eligible
common-law
employees and statutory employees of AXA Equitable and certain participating affiliates. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974
(“ERISA”), as amended, and the Internal Revenue Code of 1986 (the “Code”), as amended.
Plan Fiduciary,
Administrator and Trustee
The named fiduciaries of the Plan are the Administrative Committee and the Investment Committee. The
Administrative Committee serves as the Plan administrator, Northern Trust is the custodian, trustee and disbursement agent of the Plan, and Fidelity Trust Company (“Fidelity”) serves as the legal custodian for the fixed income investments.
Plan Amendment
The
following represents the material amendments made to the Plan for the 2016 Plan year:
The Plan was amended effective June 13,
2016 to permit officers or officer equivalents of an affiliate to participate as members of the committee, affiliate appointed by Senior Executive Director and Chief Human Resource to be responsible for reviewing investment guidelines, monitoring
asset managers, selecting asset allocations and investment options for the Plan, and delegating such responsibility as deemed appropriate.
Eligibility
The Plan
covers full-time employees, “Group I” part-time employees, financed financial professionals, and statutory employees, as well as other employees of AXA Equitable and employees of certain participating affiliates who are scheduled to work a
minimum of 1,000 hours in a Plan year.
Contributions
Eligible new hires are automatically enrolled in the Plan after performing one hour of service. Each year, participants may contribute to the
Plan on a
before-tax
basis, an
after-tax
basis, or a Roth 401(k) basis (or any combination of the foregoing), up to a percentage of annual compensation as
defined in the Plan. The Plan has an automatic participation feature with a
30-day
opt-out
option. Eligible new hires who do not opt out, are automatically deemed to
have elected a 3%
before-tax
contribution rate, which is automatically invested in the target allocation fund closest to the individual’s 65
th
birthday. Participants can elect to have
before-tax
contributions automatically increase each year by 1% until the participant reaches a 10% deferral percentage or elects out of the automatic increase program.
New hires can
opt-out,
or change their contribution rate or investment options at any time. The maximum
before-tax
and/or Roth 401(k) contribution a participant can
contribute is 75% of his or her annual eligible compensation, subject to reduction by limits imposed by the Code ($18,000 for 2017 and 2016).
4
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
|
1.
|
DESCRIPTION OF THE PLAN (continued)
|
The maximum
after-tax
contribution is $10,000 (prior
to January 1, 2014, $25,000) or 20% of the participant’s annual eligible compensation (10% for Puerto Rican participants and up to $10,000 per Plan year), whichever is less, provided that the participant’s combined
before-tax,
Roth 401(k) and
after-tax
contributions cannot exceed 95% of his or her annual eligible compensation (Puerto Rican participants cannot make 401(k) Roth
contributions). Participants who have attained age 50 before the end of the Plan year are eligible to make
catch-up
contributions in the amount of $6,000 for 2017 and 2016 ($1,500 for Puerto Rican
participants). The maximum
before-tax
and/or Roth 401(k) contribution that a participant eligible for catch up contributions can contribute per the Code was $24,000 for 2017 and 2016 ($1,500 in 2017 and $1,500
in 2016 for Puerto Rican participants). Total maximum contribution is the amount of $54,000 for 2017 and $15,000 for Puerto Rican participants.
Participants may also contribute amounts representing eligible rollover distributions from other qualified defined benefit or defined
contribution plans.
For purposes of the Plan, compensation (i) does not include deferred earnings at the time earned but includes
them at time of receipt so long as the participant is still in service with the Company or its participating affiliates and their affiliates or subsidiaries and (ii) does not include
non-benefits
eligible
compensation. In addition, Effective January 1, 2014, for purposes of computing Company Contributions (“Company Contribution”), compensation shall exclude any distributions of deferred earnings including the earnings and losses
thereon received by a participant which are attributable to his or her elective deferrals made to the AXA Equitable Post-2004 Variable Deferred Compensation Plan on or after January 1, 2014 solely for the purpose of determining the Company
Contributions.
Effective February 12, 2012, the Company and certain participating affiliates replaced the 3% matching contribution
with a discretionary performance based (prior to February 2016, known as a profit sharing) contribution opportunity of up to 4% compensation if the applicable employer meets certain performance goals. Other participating affiliates continue to make
matching contributions. For 2017, the Company made a performance based contribution of $6,759,362 in March 2018. For 2016, the Company made a performance based contribution of $6,693,205 in March 2017.
The Plan was also amended on December 30, 2013 to add effective with the first payroll period ending in the 2014 calendar year, a Company
contribution for all participants except AXA Liabilities Managers Inc., AXA Art Insurance Corporation and Fine Art Services International (U.S.) Inc., or effective January 1, 2013, AXA Insurance Company and AXA Art Americas Corporation
(collectively “AXA LM”) participants. Such payroll contributions will equal to, each Plan year, 2.5% of the eligible participant’s eligible annual compensation up to the Social Security Wage Base ($127,200 in 2017) and of 5% of the
eligible participant’s eligible annual compensation in excess of the Social Security Wage Base up to the IRS compensation limit of $270,000 in 2017, provided that such participant meets certain employment conditions.
AXA Investment Managers, S.A.’s subsidiaries: AXA Private Equity US LLC and AXA IM Rose, Inc. or effective January 1, 2014, AXA Real
Estate Managers US LLC and AXA Investment Managers Inc. (“AXA IM”) continued to provide a matching contribution which shall be not more than 4% of the applicable participant’s compensation (prior to January 1, 2014, 3%) and did
not adopt the new performance based/ profit sharing contribution formula.
5
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
|
1.
|
DESCRIPTION OF THE PLAN (continued)
|
AXA LM continues to provide to AXA LM Participants a 5% matching contribution and a
retirement program contribution which is based on the AXA LM participant’s age and years of service.
Performance based contributions
(if any), Company Contributions and matching contributions are invested in (i) accordance with the participants’ current investment election or, (ii) if no election, in the qualified default investment designated by the Investment
Committee, which is the target allocation fund closest to the individual’s 65
th
birthday.
The Plan was amended in 2015 to provide that effective January 1, 2015, any service performed for Global Reinsurance Company of America
prior to January 1, 2015, will be generally recognized as vesting service.
The Plan was amended in 2015 to allow effective
September 25, 2015, the conversion of at least $500 or more of the participant’s eligible vested Plan account balance to a Roth 401(k) account no more than twice a year.
Allocation Provisions
Participants direct the investment of their contributions into various investment options offered by the Plan. In 2017, the Plan offered twelve
target allocation funds through a group annuity contract, seventeen mutual funds, a Company stock fund, a
self-directed
brokerage window program and a fixed income fund as investment options for participants.
Two of the core funds utilize a volatility management investment strategy (i.e., an asset management strategy that limits equity exposure during periods of high volatility to provide downside protection, but may also limit returns in an
“up-market”).
Effective July 21, 2010, the Company stock fund changed from a unitized stock fund to an individual share accounting fund. No new contributions, loan repayments, or transfers can be made
to the Company stock fund on or after March 22, 2010.
Participant Accounts
Each participant’s account is credited with the participant’s contribution, matching contribution/ performance based contribution,
Company Contribution and investment earnings/losses, and is also charged with an annual fee for administrative expenses taken proportionately on a quarterly basis from each fund. 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
Active participants may borrow from their fund accounts, in $1 increments (prior to March 30, 2011 in $100 increments), a minimum of
$1,000 up to a maximum equal to the lesser of (i) $50,000 or (ii) 50% of their vested account balance (minus any outstanding loans). Participants may have up to two loans outstanding at any time, either two general purpose loans or one residential
and one general purpose loan. The loans are collateralized by the balance in the participant’s account. Interest on the loan is equal to the prime rate at the beginning of the calendar quarter during which the loan is issued plus one percent.
The interest rates for all outstanding loans ranged from 4.25% to 11% as of December 31, 2017 and 2016.
6
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
|
1.
|
DESCRIPTION OF THE PLAN (continued)
|
Principal and interest is paid over a range of one to five years for general purpose loans
and five to fifteen years for residential loans. Participants whose loan is deemed distributed are not permitted to actively participate in the Plan for 6 months from the date of the deemed distribution (Under Section 11.7 of the 401(k) Plan, a
401(k) Plan participant who fails to pay the required loan payments in any month shall have the amount of such loan (plus any accrued interest) deemed to be a distribution under Internal Revenue Code Section 72(p)(1)(A) if the Participant fails
to bring the loan current by the end of the following calendar quarter), which means that they will not be able to make employee deferrals or receive matching contributions but will, however, be eligible to receive the performance based contribution
(if any) and the Company Contributions. However, an active participant is permitted to transfer account balances among investment funds (except to the Company stock fund).
Payment of Benefits
Upon
termination of service, including due to death, disability, or retirement, the normal form of benefit is a single sum cash payment (except for the MONY Life Retirement Plan for Field Underwriters (“FURP”) subaccounts), in which the normal
form of benefit for single individuals is a straight life annuity and for married individuals (as recognized under state or foreign law based on the state or country of celebration) is a qualified joint and survivor annuity. Additional forms of
distribution available for participants include monthly installments or the purchase of an annuity. Required minimum distributions as required by the Code are also paid, as necessary. Participants may also become eligible for benefit distributions
through special circumstances, such as natural disasters, in accordance with IRS guidance.
A participant who has separated from service or
is Disabled (as defined under the Plan) may elect to receive partial lump sum withdrawals from his or her vested account balance.
Vesting
Participants are
vested immediately in their own contributions plus actual earnings, if any, thereon. Matching contributions, performance based contributions and Company Contributions are vested upon completion of three years of service. Participants also become
100% vested upon reaching normal retirement age, or becoming disabled, or dying while in service, or if AXA Equitable terminates the Plan or discontinues all employer contributions.
Special vesting rules apply for certain participants. AXA LM participants are fully vested in their retirement program contributions. In
addition, the Plan recognizes prior vesting service for certain participants who were employed by AXA Rosenberg Investment Management LLC and its affiliates and Global Reinsurance Company of America prior to being employed by AXA Equitable or its
participating employer if they meet certain employment date conditions.
Effective September 30, 2013, participants who were employed
by AXA Private Equity U.S. LLC immediately prior to September 30, 2013 and effective October 1, 2013, participants whose employment was transferred to Protective Life Insurance Company pursuant to the corporate transactions contemplated in
the Master Agreement by and among AXA Equitable Financial Services, LLC, AXA Financial, Inc. and Protective Life Insurance Company, dated as of April 10, 2013, were fully vested in their benefits.
7
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
|
1.
|
DESCRIPTION OF THE PLAN (continued)
|
Forfeited Accounts
Upon termination of service, other than due to death or disability (as defined under the Plan), a participant will forfeit the
non-vested
portion of his or her account balance. Forfeitures will be used to pay for administrative expenses (see Note 7) or to reduce Company contributions, matching contributions or performance based
contributions (if any). The balance in the forfeiture account totaled $4,818,485 and $2,727,825 at December 31, 2017 and 2016, respectively. During 2017, $301,941 from the forfeiture account was used to pay for administrative expenses.
Plan Expenses and Administration
The Plan has an administrative agreement with Alight, effective March 21, 2011, as amended from time to time for the recordkeeping and
administration of the Plan. The Plan reimburses AXA Equitable for administrative services paid on the Plan’s behalf (see Note 6).
|
2.
|
SUMMARY OF ACCOUNTING POLICIES
|
Use of Estimates and Basis of Accounting
The accompanying financial statements are prepared in conformity with U.S. generally accepted accounting principles (“US GAAP”) which
requires management to make estimates that affect the financial statements and accompanying notes. Actual results could differ from those estimates.
Valuation of Investments and Income Recognition
The Plan’s investments are stated at fair value, except for fully benefit-responsive investment contracts which are reported at contract
value. A description of the valuation methodologies used for assets measured at fair value is described in Note 3,
Fair Value Disclosures
. Purchases and sales of securities are recorded on a trade-date basis.
The cost of investments on
sales is determined using specific identification. Dividends are recorded on the
ex-dividend
date. Interest income is recorded on an accrual basis. Net appreciation/(depreciation) includes the Plan’s
unrealized and realized gains and losses on investments bought and sold as well as held during the year.
Fully benefit-responsive
investment contracts are stated at contract value, which is the relevant measurement attribute for these contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the
Plan. Contract values, as reported by Fidelity, represent contributions made under the contract, plus earnings, less
participant
withdrawals, and administrative expense. Participants may ordinarily direct withdrawal or transfer of all or a portion of their investment at contract value.
Payment of Benefits
Benefits are recorded when paid.
8
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
|
3.
|
FAIR VALUE DISCLOSURES
|
Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The accounting guidance also
establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and identifies three levels of inputs that may be used to measure fair value:
|
|
Level 1
|
Quoted prices for identical instruments in active markets. Level 1 fair values generally are supported by market transactions that occur with sufficient frequency and volume to provide pricing information on an
ongoing basis.
|
|
|
Level 2
|
Observable inputs other than Level 1 prices, such as quoted prices for similar instruments, quoted prices in markets that are not active, and inputs to model-derived valuations that are directly observable or can
be corroborated by observable market data.
|
|
|
Level 3
|
Unobservable inputs supported by little or no market activity and often requiring significant management judgment or estimation, such as an entity’s own assumptions about the cash flows or other significant
components of value that market participants would use in pricing the asset or liability.
|
The asset’s or
liability’s fair value measurement level within the fair value hierarchy is based on the lowest level that is significant to the fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of
the risk associated with investing in these securities.
The following is a description of the valuation methodologies used for assets
measured at fair value. There have been no changes in methodologies used at December 31, 2017 and 2016.
Common stock
Common Stock valued based on the last sale price traded in an active market generally would be classified as Level 1. Securities with
quoted prices in markets that were not active are considered Level 2.
Mutual funds
Mutual funds valued at the closing net asset value of shares held by the Plan are classified as Level 1. When quoted prices in active
markets are not available these securities are generally considered either Level 2 or 3 depending on the availability and observability of the inputs most significant to the measurement of fair value, hence there are no redemption restrictions.
Short-term investments
Short-term investments primarily consist of interest bearing cash in a clearing account.
Self Directed Brokerage Account (“SDBA”)
Part of participant account balances that have been transferred to the brokerage account by the participants, and invested in mutual funds as
chosen by the participant.
Collective Trusts
Collective trust funds are stated at fair value as determined by the issuer of the common collective trust funds based on the fair market value
of the underlying investments. When quoted prices in active markets are not available these securities are generally considered either level 2 or 3 depending on the availability and observability of the inputs most significant measure of fair value,
hence there are no redemption restrictions.
9
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
|
3.
|
FAIR VALUE DISCLOSURES (continued)
|
The methodologies used to measure the fair values of the Plan’s investments may produce
amounts that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Plan believes its valuation methods are appropriate and consistent with those applied by other market participants, the use of
different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Assets measured at fair value on a recurring basis as of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collective Trusts
|
|
|
—
|
|
|
|
604,899,239
|
|
|
|
—
|
|
|
|
604,899,239
|
|
|
Common stock:
|
|
$
|
—
|
|
|
$
|
72,473,358
|
|
|
$
|
—
|
|
|
$
|
72,473,358
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
|
608,768,943
|
|
|
|
—
|
|
|
|
—
|
|
|
|
608,768,943
|
|
|
Balanced
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Growth
|
|
|
169,410,315
|
|
|
|
|
|
|
|
—
|
|
|
|
169,410,315
|
|
|
Fixed income
|
|
|
42,429,977
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42,429,977
|
|
|
Others
|
|
|
75,007,056
|
|
|
|
|
|
|
|
—
|
|
|
|
75,007,056
|
|
|
Self Directed Brokerage Account
|
|
|
33,384,737
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,384,737
|
|
|
Short-term investments
|
|
|
5,433,399
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,433,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
934,434,427
|
|
|
$
|
677,372,597
|
|
|
$
|
—
|
|
|
$
|
1,611,807,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2017, there were no transfers between fair value levels. All transfers between levels of the fair value hierarchy are
recognized at the beginning of the calendar quarter in which the actual date of transfer occurred.
10
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
|
3.
|
FAIR VALUE DISCLOSURES (continued)
|
Assets measured at fair value on a recurring basis as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock:
|
|
$
|
—
|
|
|
$
|
70,034,131
|
|
|
$
|
—
|
|
|
$
|
70,034,131
|
|
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Index
|
|
|
87,731,760
|
|
|
|
440,672,101
|
(1)
|
|
|
—
|
|
|
|
528,403,861
|
|
|
Balanced
|
|
|
86,533,294
|
|
|
|
—
|
|
|
|
—
|
|
|
|
86,533,294
|
|
|
Growth
|
|
|
171,405,958
|
|
|
|
265,347,448
|
(1)
|
|
|
—
|
|
|
|
436,753,406
|
|
|
Fixed income
|
|
|
116,072,986
|
|
|
|
48,644,831
|
(1)
|
|
|
—
|
|
|
|
164,717,817
|
|
|
Others
|
|
|
47,196,479
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47,196,479
|
|
|
Short-term investments
|
|
|
26,113,383
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,113,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
535,053,860
|
|
|
$
|
824,698,511
|
|
|
$
|
—
|
|
|
$
|
1,359,752,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes common collective trusts/commingled funds –
non-exchange
traded.
|
In 2016, there were no transfers between fair value levels. All transfers between levels of the fair value hierarchy are recognized at the beginning of the
calendar quarter in which the actual date of transfer occurred.
|
4.
|
PLAN SPONSOR STOCK ACCOUNT
|
Information about the net assets and the significant
components of the changes in net assets relating to the plan sponsor stock investments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Net assets
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
$
|
72,473,358
|
|
|
$
|
70,034,131
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in net assets
|
|
|
|
|
|
|
|
|
|
Net appreciation/(depreciation)
|
|
|
11,661,301
|
|
|
|
|
|
|
Benefits paid to participants
|
|
|
(1,792,179
|
)
|
|
|
|
|
|
Net transfers to participant-directed investments
|
|
|
(7,429,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,439,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
|
5.
|
GUARANTEED INVESTMENT CONTRACTS
|
The Plan has entered into fully benefit-responsive
synthetic Guaranteed Investment Contracts (“GICs”) with various insurance companies and other financial institutions (“Issuers” or “Issuer”) under the fixed income fund investment option (the “Fund”) as
indicated in the tables below.
Synthetic GIC
A Synthetic GIC is a wrap contract paired with an underlying investment or investments, usually a portfolio, owned by the Plan, of
high-quality, intermediate term fixed income securities. The Plan purchases a wrapper contract from a financial services institution with the intent of maintaining a stable contract value. The fair value of a Synthetic GIC equals that total of the
fair value of the underlying assets plus the total wrap rebid value, which is calculated by discounting the annual rebid fee, due to rebid, over the duration of the contract assets.
A Synthetic GIC provides for a variable crediting rate, which typically resets at least quarterly, and the issuer of the wrap contract provides
assurance those future adjustments to the crediting rate cannot result in a crediting rate of less than zero. The crediting rate is primarily based on the current
yield-to-maturity
of the covered investments, plus or minus 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 most impacted by the change in the annual effective yield to maturity of the underlying securities, but is also affected by the differential between the
contract value and the market value of the covered investments. This difference is amortized over the duration of the covered investments. Depending on the change in duration from reset period to reset period, the magnitude of the impact to the
crediting rate of the contract to market difference is heightened or lessened.
The terms of the contract generally provide for settlement
of payments only upon termination of the contract or total liquidation of the covered investments. Generally, payments will be made
pro-rata,
based on the percentage of investments covered by each issuer.
Contract termination also may occur by either party upon election and notice.
A Synthetic GIC generally imposes conditions on both the
Plan and the issuer which can result in terminations in the event of default by the Plan or the issuer. An issuer may terminate a contract if the appointed Investment Manager’s investment management authority over the contract is limited or
terminated, as well as if all of the terms of the contract fail to be met (i.e., a breach of material obligation under the contract; a material misrepresentation; or a material amendment to the Plan agreement). In the event that the market
value of the covered assets is below their contract value at the time of such termination by the issuer, the terminating issuer would not be required to make a payment to the Plan. The Plan may terminate and replace a contract in various
circumstances, including where there is a default by the issuer. Instances where the issuer may be in default, include but are not limited to, the following: issuer breach of material obligation under the investment contract; a material
misrepresentation; decline in the issuer’s long term credit rating below a threshold set forth in the contract; acquisition or reorganization of the issuer wherein the successor issuer does not satisfy the investment or credit guidelines
applicable to the issuer. In the event that the market value of the covered assets is below their contract value at the time of such termination by the Plan, the Plan may elect to keep the contract in place until such time as the market value of the
covered assets is equal to their contract value. The Plan may be unable to maintain a stable contract value if the Plan is unable to promptly find a replacement Synthetic GIC with comparable terms following termination of a Synthetic GIC contract.
The Plan will attempt to assess the credit quality of issuers, but there is no guarantee as to the financial condition of an issuer. Synthetic GICs are nontransferable, have no trading market and there are a limited number of issuers.
12
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
|
5.
|
GUARANTEED INVESTMENT CONTRACTS (continued)
|
The average yield for the Synthetic GICs based on actual earnings was 2.24% and 2.03% in 2017
and 2016, respectively. The average yield for Synthetic GICs based on the interest rate credited to participants was 1.94% and 1.84% in 2017 and 2016, respectively.
As described in Note 2, because the Synthetic GICs are fully benefit-responsive, contract value is the relevant measurement attribute for that
portion of the net assets available for benefits attributable to the Synthetic GIC. Contract value represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses. The Synthetic GICs
purchased by the Plan are designed to pay all related participant-initiated transactions at contract value. Participant-initiated transactions are those transactions allowed by the Plan (typically this would include withdrawals for benefits, loans,
or transfers to
non-competing
funds within the Plan).
However, the Synthetic GICs limit the
ability of the Plan to transact at contract value with the Issuers upon the occurrence of certain events.
These events include:
|
|
•
|
|
The Plan’s failure to qualify under Section 401(a) or Section 401(k) of the Code;
|
|
|
•
|
|
The establishment of a defined contribution plan that competes with the Plan for participants’ contributions;
|
|
|
•
|
|
Any substantive modification of the Plan or the administration of the Plan that is not consented to by the Issuer;
|
|
|
•
|
|
Complete or partial termination of the Plan;
|
|
|
•
|
|
Any change in law, regulation or administrative ruling applicable to the Plan that could have a material adverse effect on the Fund’s cash flow;
|
|
|
•
|
|
Merger or consolidation of the Plan with another plan, the transfer of Plan assets to another plan, or the sale,
spin-off
or merger of a subsidiary or division of the Plan
Sponsor;
|
|
|
•
|
|
Any communication given to participants by the Plan Sponsor or any other Plan fiduciary that is designed to induce or influence participants not to invest in the fund or to transfer assets out of the Fund;
|
|
|
•
|
|
Exclusion of a group of previously eligible employees from eligibility in the Plan;
|
|
|
•
|
|
Any early retirement program, group termination, group layoff, facility closing, or similar program;
|
|
|
•
|
|
Any transfer of assets from the Fund directly to a competing option.
|
The Plan administrator
does not believe that the occurrence of any such event, which would limit the Plan’s ability to transact at contract value with participants, is probable.
There are no reserves against contract value for credit risk of the contract Issuer or otherwise.
13
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
|
5.
|
GUARANTEED INVESTMENT CONTRACTS (continued)
|
The Synthetic GICs are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Synthetic GICs at contract value
|
|
|
|
|
|
|
|
|
|
JP Morgan Chase,
#AXA-2-07
|
|
$
|
102,995,646
|
|
|
$
|
110,499,359
|
|
|
State St Bk & Tr Co Boston, #107007
|
|
|
82,157,686
|
|
|
|
89,409,431
|
|
|
Prudential Ins Co America, #63048
|
|
|
108,628,546
|
|
|
|
109,312,459
|
|
|
American General Life, #931942
|
|
|
65,335,173
|
|
|
|
94,803,433
|
|
|
Bank Of Tokyo – Mitsubishi
|
|
|
—
|
|
|
|
108,458,136
|
|
|
Nationwide Life ins CO
|
|
|
58,773,300
|
|
|
|
—
|
|
|
Transamerica Premier Life
|
|
|
75,726,867
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Guaranteed Investment Contracts
|
|
$
|
493,617,218
|
|
|
$
|
512,482,818
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
RELATED-PARTY AND
PARTY-IN-INTEREST
TRANSACTIONS
|
Effective March 21, 2011, Alight is the record keeper and effective March 24, 2011 Northern Trust is the custodian trustee and
disbursement agent of the Plan. Fidelity is the custodian for the GIC investments. The Plan invests in a fixed income fund managed by Fidelity. Certain Plan investments are managed by Funds Management Group, LLC and AllianceBernstein L.P.,
parties-in-interest.
Both, Funds Management Group, LLC and AllianceBernstein L.P. are affiliates of AXA Equitable. Administrative service fees paid by the Plan directly to
Funds Management Group, LLC were determined by the expense ratios of 0.95, 0.70, 1.08, 0.89, and 0.87 for the funds, EQ/MFS International K, EQ/AllianceBernstein Small Cap Growth, 1290 VT GAMCO Small Company Value K, the AXA Large Cap Growth Managed
Volatility and the AXA Large Cap Value Managed Volatility, respectively. Administrative service fees paid by the Plan directly to AllianceBernstein L.P., Alight, Fidelity, and Northern Trust were $466,470, $1,167,675, $203,163 and $242,123
respectively, during the year ended December 31, 2017.
The Plan incurred expenses in the amount of $2,031,554, including $181,988 and
$186,328 of accrued expenses at December 31, 2017 and 2016, respectively, for administrative services paid by AXA Equitable on the Plan’s behalf.
The Plan also invests in common stock issued by AXA, S.A., the parent of AXA Equitable, which are evidenced by American Depository Receipts
(“ADRs”). The AXA, S.A. ADRs held by participants were valued at $72,473,358 and $70,034,131 at December 31, 2017 and 2016, respectively. During the year ended December 31, 2017, the Plan received sales proceeds totaling
$9,219,252 of AXA, S.A ADRs. The Plan received $2,701,331 in dividend income during the year ended December 31, 2017 from AXA, S.A. ADRs held.
The Plan administrator and the Plan’s counsel believe that the Plan’s transactions with related parties and
parties-in-interest
are permitted by the U.S. Department of Labor’s prohibited transaction exemptions.
14
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
The following describes the terms of the annual discretionary
performance based contribution: (i) the applicable performance goals and results will be determined each year by the applicable participating entity; (ii) subject to tax law limits, the percentage of any performance based contribution for
a year will range from 0% up to 4%, as determined each year by the applicable participating entity in its sole discretion; (iii) to be eligible for any profit-sharing contribution for a year, a participant must be employed by AXA Equitable or
any of its affiliates or subsidiaries on the last day of that year. However, if during that year, such participant: (a) retires directly from service for purposes of the AXA Equitable Retirement Plan or Retirement Income Security Plan for
Employees, as applicable, (b) dies or becomes disabled while in service with AXA Equitable or any of its affiliates or subsidiaries or (c) has his or her job is eliminated by AXA Equitable or any of its affiliates or subsidiaries, such
participant’s account will be credited with a profit-sharing contribution (if one is made) based on his or her eligible compensation from the applicable participating entity during that year prior to the date he or she retires, dies, becomes
disabled or is job eliminated, as applicable. Any performance based contribution for a year will be made no later than March 15 of the following year. The Company made a 1% performance based contribution for the Plan year 2017 to eligible
participants (other than AXA LM and AXA IM Participants). This contribution of $6,759,363 was made on March 9, 2018.
The Plan was
also amended on December 30, 2013 to add effective with the first payroll period ending in the 2014 calendar year, a Company Contribution for all participants except AXA LM participants. Such payroll contributions will be equal to, each Plan
year, 2.5% of the eligible participant’s eligible annual compensation up to the Social Security Wage Base ($127,200 in 2017) and of 5% of the eligible participant’s eligible annual compensation in excess of the Social Security Wage Base up
to the IRS compensation limit ($270,000 in 2017); provided that such participant meets certain employment conditions.
AXA LM and AXA IM
made matching contributions to their respective eligible participants and AXA LM made retirement program contributions to its eligible participants.
Participants are able to contribute up to 75% of their annual eligible compensation (see Note 1) on a combined 401(k)
before-tax
and Roth 401(k) contribution basis (Puerto Rican participants cannot make Roth 401(k) contributions). In addition participants may contribute up to 20% of their eligible compensation up to $10,000 (prior
to January 1, 2014, $25,000) on an
after-tax
basis (Puerto Rican participants can only contribute up to 1,000 of their eligible compensation and up to $10,000 per year).
In addition, AXA Equitable will absorb Plan administration costs beyond the value of the forfeiture account. The Plan is not subject to
ERISA’s minimum funding requirements.
Although it has not expressed any intent to do so, AXA Equitable has
the right under the Plan to discontinue its contributions at any time and/or to terminate the Plan subject to the provisions of ERISA and the Code. In the event of Plan termination, assets will be distributed to participants in accordance with the
provisions of the Plan.
15
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
The Internal Revenue Service has determined and informed AXA Equitable by a
letter dated January 19, 2018, that the Plan and related trust are designed in accordance with applicable sections of the Code. Effective January 1, 2011, the Plan was amended to comply with the tax qualification provisions of the Puerto
Rican tax code and to provide for dual qualification. A determination letter from the Puerto Rican Hacienda was received on October 25, 2013. The Plan has been amended since receiving the determination letter. The Plan administrator and the
Plan’s tax counsel believe that the Plan is designed and is currently being operated in compliance with the applicable requirements of the Code. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
US GAAP requires Plan 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 has analyzed the tax positions taken, and has concluded that as of December 31, 2017, 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 and does not expect this position to change within the next twelve months. The Plan is subject to
routine audits by various federal, state, and local tax jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan administrator believes it is no longer subject to income tax examinations for years prior to
2012.
The Plan recognizes accrued interest and penalties related to unrecognized tax benefits in tax expense. There were no interest and
penalties included in the Plan’s financial statements.
|
10.
|
RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
|
The following is a reconciliation
of net assets available for benefits per the financial statements to Form 5500 at December 31, 2017 and 2016, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Net assets available for benefits per the financial statements
|
|
$
|
2,129,727,227
|
|
|
$
|
1,899,262,416
|
|
|
Adjustment from contract value to fair value for fully benefit-responsive investment
contracts
|
|
|
(17,909
|
)
|
|
|
3,610,534
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets available for benefits per the Form 5500
|
|
$
|
2,129,709,318
|
|
|
$
|
1,902,872,950
|
|
|
|
|
|
|
|
|
|
|
|
16
AXA EQUITABLE 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED
DECEMBER 31, 2017 AND 2016
|
10.
|
RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 (continued)
|
The following is a reconciliation of investment loss per the financial statements to Form
5500 for the year ended December 31, 2017:
|
|
|
|
|
|
|
Net investment gain per the financial statements
|
|
$
|
278,171,385
|
|
|
Add: Adjustment from fair value to contract value for fully benefit-responsive investment
contracts
|
|
|
(3,628,443
|
)
|
|
|
|
|
|
|
|
Investment gain per the Form 5500
|
|
$
|
274,542,942
|
|
|
|
|
|
|
|
|
11.
|
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 statement of net assets available for benefits.
On September 5, 2014, Paul John Malagoli, a participant in the Plan and AXA Equitable Retirement Plan, filed a complaint in the United
States District Court for the Southern District Court of New York,. Mr. Malagoli alleges that AXA Equitable breached its fiduciary duty by not including commissions, fees and additional compensation for determination of his benefits under the
Plans. On October 20, 2015, Mr. Malagoli filed a Second Amended Complaint, naming the Officers Committee on Benefit Plans and the individuals of the fiduciary committees as defendants. On March 24, 2016, the court granted
AXA’s motion to transfer venue to New Jersey based on the forum selection clause contained in the Plans. On March 18, 2017, the Court issued a notice of call for dismissal for lack of prosecution. Malagoli’s attorney submitted an
affidavit that, due to recent medical issues, he has been unable to prosecute the case. The Court withdrew the notice of dismissal and scheduled a settlement conference for the end of August 2017. In May 2018, the parties appeared telephonically
before the D.N.J. Magistrate Judge to address plaintiff’s motion to compel further responses to discovery requests. The Court did not rule on the motion and instead instructed the parties to submit letter-briefs addressing the
appropriateness of plaintiff’s discovery requests, as well as whether the Company should be permitted to file a motion for summary judgment prior to completion of discovery. The cross-letter briefs were submitted June 1, 2018.
As a consequence of the stock sale of AXA Equitable Holdings in May
of 2018, certain participating employers that were participating in the AXA Equitable 401(k) Plan were no longer part of a controlled group with AXA Equitable Life Insurance Company and were no longer able to actively contribute to the AXA Equitable
401(k) Plan. Accordingly, those participating employers ceased participation in the AXA Equitable 401(k) Plan effective March 31, 2018.
17