Notes to Financial Statements
1.
|
Description of the Plan
|
The following description of the Ecology & Environment, Inc. 401(k) Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan document for a more comprehensive description of the Plan’s provisions.
General
The Plan was established January 1, 1994 as a defined-contribution plan to cover all eligible employees of Ecology and Environment, Inc. (the “Company”). All employees age twenty-one or older are eligible to participate in the Plan during the month following their date of hire. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Plan Administration
The Plan is administered by the Company. Great-West Trust Company, LLC (“Great-West”; formerly Putnam Fiduciary Trust Company) is the Trustee and Recordkeeper of the Plan. The Trustee determines the appropriateness of the Plan’s investment offerings and monitors investment performance.
Certain expenses of maintaining the Plan are paid directly by the Company and are excluded from these financial statements. The remaining expenses are paid for by the Plan’s participants.
Voluntary Correction Plan
In May 2016, the Company filed a Voluntary Correction Program with the Internal Revenue Service (the “IRS”) to report and correct an operational error for the Plan. Refer to Note 9 of these financial statements for additional information.
Contributions
All contributions to the Plan are cash contributions, and all investments of the Plan are participant directed. Participants may elect to make voluntary contributions subject to the limitations of the Internal Revenue Code (the “IRC”). An employee’s elected deferral percentage may be modified effective the first day of any month. Upon enrollment in the Plan, a participant may direct, in at least 10 percent increments in each option selected, his or her contributions in any combination of the various investment options and a self-directed brokerage account. The Plan allows Roth 401(k) contributions from participants. Participants who were 50 years of age or older during the Plan year are allowed to contribute catch up contributions.
Participant Accounts
Each participant’s account is credited with the participant’s contribution and the Plan’s earnings, and charged with an allocation of administrative expenses paid by the Plan. Allocations of administrative expenses are based on participant account balances, as defined in the Plan document. The benefit to which a participant is entitled is the participant’s vested account balance.
Vesting
Participants are immediately vested in their contributions plus actual earnings thereon. There is no partial vesting. There are no company matching or discretionary contributions.
Ecology and Environment, Inc.
401(k) Plan
Financial Statements and Supplemental Schedule
Notes Receivable from Participants
Participants may borrow from their account a minimum of $1,000 with a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Note terms range from one to five years or a reasonable period of time determined when the note is made for the purchase of a primary residence. The notes are collateralized by the balance in the participant’s account. The interest rate is the Prime Rate published by the Wall Street Journal on the first business day of the month during which the loan is originated plus 1%. The interest rate is fixed over the life of the loan. Principal and interest are paid ratably through bi-weekly payroll deductions.
Payment of Benefits
Participants may withdraw all or a portion of their vested account balance at any time upon hardship or after the attainment of age 59½. In general, unless the participant elects otherwise, distribution of benefit will commence within 60 days after the close of the Plan year in which the participant terminates employment with the employer. Participants must begin to receive benefits no later than the April 1
st
following the calendar year in which the participant attains 70½ or terminates employment, whichever is later.
Upon termination, if a participant’s vested account balance is $1,000 or less, the participant will automatically receive a lump sum distribution as soon as feasible.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right to discontinue and terminate the Plan at any time, subject to the provisions of ERISA.
2.
|
Summary of Accounting Policies
|
Basis of Accounting
The financial statements of the Plan are prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Investments and Related Transactions
Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transfer between market participants at the measurement date. The Plan’s assets include an investment in the common stock of Ecology & Environment, Inc. through a unitized stock fund, which includes a money market fund for liquidity purposes, and through the brokerage access account. The Plan’s trustees determine the Plan’s valuation policies utilizing information provided by the investment advisers and custodians. Refer to Note 6 for additional disclosures regarding fair value measurements.
The Plan’s net (depreciation) appreciation in fair value of investments includes both realized gains and losses and unrealized (depreciation) appreciation. Interest and dividend income is recognized as earned. Investment transactions are accounted for on a trade date basis.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balances plus any accrued but unpaid interest. Interest income is recorded on the accrual basis. Delinquent notes receivable are reclassified as distributions based upon the terms of the Plan document. No allowance for credit losses was recorded at December 31, 2015 or 2014.
Ecology and Environment, Inc.
401(k) Plan
Financial Statements and Supplemental Schedule
Payment of Benefits
Benefits are recorded when paid by the Plan.
Use of Estimates
The preparation of the Plan’s financial statements in conformity with U.S. GAAP requires the Company, as the Plan administrator, to make estimates and assumptions that affect the reported amounts of net assets and disclosures of contingent net assets at the date of the financial statements and the reported amounts of changes in net assets during the reporting period. Actual results could differ from those estimates.
3.
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Recent Accounting Pronouncements
|
In May 2015, FASB issued ASU No. 2015-07, “Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share (Or its Equivalent)” (“ASU 2015-07”). ASU 2015-07 removes the requirements to: 1) categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value (“NAV”) per share practical expedient; and 2) make certain disclosures for all investments that are eligible to be measured at fair value using the NAV per share practical expedient. The amendments in ASU 2015-07 are effective for public entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The amendment is required to be applied retrospectively and early adoption is permitted. The Company has elected to adopt ASU 2015-07 for the Plan year ended December 31, 2015. Other than the changes to disclosures noted above, the adoption of ASU 2015-07 did not have a material impact on the Plan’s financial statements.
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-12
,
“
Plan Accounting: Defined Benefit Pension Plans (Topic 960); Defined Contribution Pension Plans (Topic 962); and Health and Welfare Benefit Plans (Topic 965)” (“ASU 2015-12”). Specific provisions of ASU 2015-12 that apply to the Plan are as follows:
|
·
|
Part I of ASU 2015-12 designates contract value as the only required measure for fully benefit-responsive investment contracts.
|
|
·
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Part II of ASU 2015-12
eliminates the current U.S. GAAP requirements for plans to disclose individual investments that represent 5 percent or more of net assets available for benefits, and the net appreciation or depreciation for investments by general type, for both participant-directed investments and nonparticipant-directed investments. It also allows investments to be grouped only by general type, eliminating the requirement to disaggregate investments in multiple ways. In addition, if an investment is measured using the NAV per share (or its equivalent) practical expedient and that investment is in a fund that files a U.S. Department of Labor Form 5500, Annual Return/Report of Employee Benefit Plan, as a direct filing entity, disclosure of that investment’s strategy will no longer be required.
|
The amendments in ASU 2015-12 are effective for financial statements issued for fiscal years beginning after December 15, 2015. Part II is to be applied retrospectively and early adoption is permitted. The Company has elected to adopt Part II of ASU 2015-12 for the Plan year ended December 31, 2015. Other than elimination of the disclosures noted above, early adoption of Part II of ASU 2015-12 did not have a material impact on the Plan’s financial statements.
Ecology and Environment, Inc.
401(k) Plan
Financial Statements and Supplemental Schedule
The IRS has determined, and has informed Great-West by a letter dated May 18, 2011, that the prototype non-standardized profit sharing plan adopted by the Plan is designed in accordance with the applicable sections of the IRC. Although the Plan had been amended since receiving the determination letter, the Company and the Plan’s tax counsel believe that the Plan was designed and was operated in compliance with applicable requirements of the IRC.
The Plan is subject to routine examinations by taxing jurisdictions. U.S. GAAP requires the Company’s management to evaluate tax positions taken by the Plan and to recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by taxing jurisdictions. The Company has analyzed the tax positions taken by the Plan and has concluded that as of December 31, 2015 and 2014, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in these financial statements.
5.
|
Risks and Uncertainties
|
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.
6.
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Fair Value Measurements
|
The U.S. GAAP framework for measuring fair value provides a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under Topic 820 are described as follows.
|
Level 1:
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Inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Plan can access at the measurement date
|
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Level 2:
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Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as:
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|
·
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Quoted prices for similar assets or liabilities in active markets
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|
·
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Quoted prices for identical or similar assets or liabilities in inactive markets
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|
·
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Inputs other than quoted prices that are observable for the asset or liability
|
|
·
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Inputs that are derived principally from or corroborated by observable market data by correlation or other means
|
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
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Level 3:
|
Inputs that are unobservable inputs for the asset or liability
|
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value. There were no transfers between level 1 and level 2 assets for the years ended December 31, 2015 and 2014.
Cash and cash equivalents:
Valued at the balance of the account at year end.
Common stocks and preferred stock:
Valued at the closing price reported on the active market on which the individual securities are traded.
Self-directed brokerage account:
Primarily consists of mutual funds and common stocks that are valued on the basis of readily determinable market prices.
Ecology and Environment, Inc.
401(k) Plan
Financial Statements and Supplemental Schedule
Mutual funds:
Valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-ended mutual funds that are registered with U.S. Securities and Exchange Commission. These funds are required to publish their daily NAV and to transact at that price. The mutual funds held by the Plan are deemed to be actively traded.
Unit investment trusts:
Comprised entirely of common stocks, and valued at the closing price reported on the active market on which the individual securities are traded.
Unitized stock fund:
Valued at the closing price reported on the active market on which the individual securities are traded. A small portion of the fund is invested in short-term money market instruments.
Common collective trust funds:
The fair value of the Plan’s interest in the collective trust funds is based on the NAV reported by the fund managers as of the financial statement dates and recent transaction prices. The following fully benefit-responsive investment funds are included in the collective trust funds as of December 31, 2015 and 2014:
Stable value fund:
The stable value fund is comprised primarily of fully benefit-responsive investment contracts that are valued at the NAV of units of the bank collective trust. The NAV is used as a practical expedient to estimate fair value. 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 the reported NAV. Participant transactions (purchases and sales) may occur daily. If the Plan initiates a full redemption of the collective trust, the issuer reserves the right to require 12 months’ notification in order to ensure that securities liquidations will be carried out in an orderly business manner.
S&P 500 index fund:
The S&P 500 index fund is a collective investment trust valued at the NAV of units of the trust. The NAV is used as a practical expedient to estimate fair value. The fund invests primarily in common stock securities.
The fair value calculations produced by the preceding methods 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 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.
Fair values of the Plan’s investments, by level within the fair value hierarchy, are presented in the following tables.
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|
Assets at Fair Value at December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
29,750,136
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
29,750,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage access account:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
111,467
|
|
|
|
---
|
|
|
|
---
|
|
|
|
111,467
|
|
Preferred stock
|
|
|
25,259
|
|
|
|
---
|
|
|
|
---
|
|
|
|
25,259
|
|
Common stock
|
|
|
394,149
|
|
|
|
---
|
|
|
|
---
|
|
|
|
394,149
|
|
Mutual funds
|
|
|
400,589
|
|
|
|
---
|
|
|
|
---
|
|
|
|
400,589
|
|
Unit investment trusts
|
|
|
127,657
|
|
|
|
---
|
|
|
|
---
|
|
|
|
127,657
|
|
Total brokerage access account
|
|
|
1,059,121
|
|
|
|
---
|
|
|
|
---
|
|
|
|
1,059,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitized stock fund
|
|
|
467,589
|
|
|
|
---
|
|
|
|
---
|
|
|
|
467,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets in fair value hierarchy
|
|
$
|
31,276,846
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
|
31,276,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at NAV (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,259,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41,536,254
|
|
Ecology and Environment, Inc.
401(k) Plan
Financial Statements and Supplemental Schedule
|
|
Assets at Fair Value at December 31, 2014
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
30,416,748
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
$
|
30,416,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage access account:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
178,130
|
|
|
|
---
|
|
|
|
---
|
|
|
|
178,130
|
|
Preferred stock
|
|
|
24,870
|
|
|
|
---
|
|
|
|
---
|
|
|
|
24,870
|
|
Common stock
|
|
|
384,020
|
|
|
|
---
|
|
|
|
---
|
|
|
|
384,020
|
|
Mutual funds
|
|
|
538,170
|
|
|
|
---
|
|
|
|
---
|
|
|
|
538,170
|
|
Unit investment trusts
|
|
|
128,055
|
|
|
|
---
|
|
|
|
---
|
|
|
|
128,055
|
|
Total brokerage access account
|
|
|
1,253,245
|
|
|
|
---
|
|
|
|
---
|
|
|
|
1,253,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitized stock fund
|
|
|
381,805
|
|
|
|
---
|
|
|
|
---
|
|
|
|
381,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets in fair value hierarchy
|
|
$
|
32,051,798
|
|
|
$
|
---
|
|
|
$
|
---
|
|
|
|
32,051,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments measured at NAV (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,260,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42,312,205
|
|
|
(a)
|
In accordance with Subtopic 820-10, certain investments that were measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the statement of net assets available for benefits.
|
Investments measured at fair value based on the NAV per share practical expedient are summarized in the following table. There are no participant redemption restrictions for these investments; the redemption notice period is applicable only to the Plan.
|
Fair Value
|
|
Unfunded
Commitments
|
|
Redemption
Frequency
|
|
Redemption
Notice Period
|
Balance at December 31, 2015:
|
|
|
|
|
|
|
|
Common collective trust funds
|
|
$
|
10,259,408
|
|
None
|
|
Daily
|
|
None
|
|
|
Balance at December 31, 2014:
|
|
Common collective trust funds
|
|
$
|
10,260,407
|
|
None
|
|
Daily
|
|
None
|
7.
|
Related Party Transactions and Parties-in-Interest
|
Plan investments include securities issued by the Company, as summarized in the following table.
|
|
Balance at
December 31, 2015
|
|
|
Balance at
December 31, 2014
|
|
|
|
Number of Shares
|
|
|
Fair Value
|
|
|
Number of Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unitized Stock Fund:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ecology and Environment, Inc. Class A Common Stock
|
|
|
38,814
|
|
|
$
|
404,539
|
|
|
|
35,499
|
|
|
$
|
326,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brokerage Access Account:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ecology and Environment, Inc. Class A Common Stock
|
|
|
6,265
|
|
|
$
|
64,091
|
|
|
|
6,265
|
|
|
$
|
57,213
|
|
Dividends received from Ecology and Environment, Inc. Class A Common Stock totaled $20,842 during the Plan year ended December 31, 2015.
Plan investments include certain funds administered by Great-West, the Trustee and Recordkeeper of the Plan.
Ecology and Environment, Inc.
401(k) Plan
Financial Statements and Supplemental Schedule
Fees paid by the Plan to Great-West for administrative services were $2,843 for the Plan year ended December 31, 2015. All other fees related to the Plan’s operations are paid directly by the Company and are excluded from these financial statements.
Plan investment income from participant loans was $10,956 for the Plan year ended December 31, 2015.
8.
|
Reconciliation of Financial Statements to Form 5500
|
The following table provides reconciliations between these financial statements and the Plan’s Form 5500, Annual Return/Report of Employee Benefit Plan (the “Form 5500”).
|
|
Plan Year Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Net assets available for Plan benefits:
|
|
|
|
|
|
|
Plan net assets at year-end per these financial statements
|
|
$
|
41,805,255
|
|
|
$
|
42,575,683
|
|
Miscellaneous adjustments
|
|
|
---
|
|
|
|
66,648
|
|
Plan net assets at year end per the Plan’s Form 5500
|
|
$
|
41,805,255
|
|
|
$
|
42,642,331
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in net assets available for Plan benefits:
|
|
|
|
|
|
|
|
|
(Decrease) increase in Plan net assets per these financial statements
|
|
$
|
(770,428
|
)
|
|
$
|
1,122,540
|
|
Miscellaneous adjustments
|
|
|
(66,648
|
)
|
|
|
25,430
|
|
(Decrease) increase in Plan net assets per the Plan’s Form 5500
|
|
$
|
(837,076
|
)
|
|
$
|
1,147,970
|
|
In May 2016, the Company filed a Voluntary Correction Program (the “VCP”) with the IRS to report an operational error discovered subsequent to December 31, 2015. The operational error related to several employees of a subsidiary of the Company who became employees of the Company during calendar year 2015. Although the employees completed appropriate administrative forms and began participation in August 2015, the Plan’s Adoption Agreement in effect at that time specifically excluded these former subsidiary employees from participation. An amended Plan Adoption Agreement was consummated in February 2016 to include these employees. In May 2016, the Company filed the VCP to report the operational error and to document the corrective actions taken. The Company subsequently received formal acknowledgement of the IRS’s receipt and review of the VCP, but has not yet been informed of the results of the IRS’s review.