FRONTIER COMMUNICATIONS 401(k) SAVINGS PLAN
Notes to the Financial Statements
December 31, 2018
and 2017
(1)
Description of the Plan
General
The following
brief
description of the
Frontier Communications
401(k) Savings Plan (the “Plan”)
provides general
and limited
information. Participants should refer to the Plan document for a more comprehensive description of the Plan’s provisions.
Copies of the Plan document are available from the Plan sponsor.
(a
)
Background
The Plan is a defined contribution plan sponsored
and managed
by
Frontier
Communications
Corporation
(
“Frontier” or
the “Company”
or the “Plan Administrator”
).
Under the terms of the Plan, employees are eligible to participate
in the P
lan
immediately followin
g the employee’s completion of
30
days of service
(the “entry date”)
, provided that the employee is employed by a participating employer in an eligible class of employees.
Leased employees, individuals not on the employer’s payroll, per diem and casual workers, temporary employees, and scholarship students are ineligible to participate. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
O
n
January 25, 2017, members of Communications Workers of America, (“CWA” or “Union”) St. Marys local 2001 and Bluefield local 2276 in West Virginia were transferred out of the Plan.
(
b)
C
ontributions
Eligible employees may contribute, in
1
% increments, up to
75
% of their annual eligible compensation in elective pre-tax deferrals through payroll deductions, subject to certain maximum contribution restrictions.
The maximum contribution allowed for deferral for U.S
.
federal income tax purposes in
201
8
was $
18,500
.
In addition, e
ligible
Company
union employees covered by collective bargaining agreements may
also
elect to make after-tax contributions
,
in
1
% increments of their annual eligible compensation
,
through payroll deductions up to
50
%
of the participant’s eligible compensation
reduced by the percentage of eligible compensation
deferred through
elective p
re
-tax deferrals.
The
Plan allow
s for
the election of Roth 401(k) contributions and regular after-tax contribu
tions for non-union employees.
No matching contributions are made with respect to regular after-tax contributions
,
e
xcept for c
ertain union employee Plan participants
whom
are eligible to receive
matching contribution
s with respect to their Roth 401(k)
and after tax
contribution.
All employees eligible to make contributions under the Plan and who have attained or will attain age 50 before the close of the Plan year shall be eligible to make catch-up contributions in accordance with, and subject to the limitations of, Section 414(v) of the Internal Revenue Code (“
IRC
”).
The maximum allowable catch-up contribution for
201
8
was $
6,000
.
No matching contributions
are
made with respect to a
p
articipant’s catch-up contributions.
Frontier
match
e
s
50% of each non-bargaining participant’s contribution
up to
6
% of each participant’s eligible compensation.
Frontier
contributions for participants covered by collective bargaining agreements are determined based on the terms of those agreements.
Frontier
contributions for
non-union and union
participants are allocated to Plan investments following the same method of allocation as that for participant-directed investments.
For
certain
union employees covered by collective bargaining agreements,
Frontier
may contribute Employer Fixed Contributions, Employer Matching Contributions
,
Discretionary
Contributions
and
FRONTIER COMMUNICATIONS 401(k) SAVINGS PLAN
Notes to the Financial Statements
December 31, 2018
and 2017
Special Transition-Y
ear Contributions
(
each
as defined by the Plan). Participants should refer to their respective bargaining agreements for all employer contribution requirements.
At December 31, 2017, the Plan has recorded a liability of $472,385, for amounts refundable by the Plan to participants for contributions made in excess of amounts allowed under the IRC. The Plan has not recorded a liability for
excess
contributions as of December 31, 2018.
(c)
Participant Accounts
Each participant’s account is credited with the participant’s contribution
s
and an allocation of (a)
Frontier
’s contribution and (b)
investment
earnings or losses
,
and charged with withdrawals and an allocation of administrative expenses
.
Allocations are based on each partic
ipant’s investment election(s)
. The benefit to which a participant is entitled is the amount that can be provided from the participant’s vested account.
(d)
V
esting
Participants are vested immediately in their
individual
contributions plus the allocated earnings thereon. Participants become 100% vested in
Frontier
contributions and the related earnings on
Frontier
contributions upon disability, death
or
attainment of normal retirement age
while an employee
. Except as otherwise noted, for any other termination of employment, the vesting schedule
for Frontier
contributions and related earnings
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting
|
|
|
Years of Service
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
Less than 2 years
|
|
0
|
%
|
|
|
|
2 years but less than 3 years
|
|
40
|
%
|
|
|
|
3 years but less than 4 years
|
|
60
|
%
|
|
|
|
4 years but less than 5 years
|
|
80
|
%
|
|
|
|
5 years or more
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Employees that were previously part of the
Frontier Communications Corporate Services Inc. Savings and Security Plan for West Region Hourly Employees that was merged into the Plan as of December 31, 201
1
are fully vested after
three
years
of service
.
Certain e
mployees that were previously part of the
former AT&T
401(k)
Plan
s
that w
ere
merged into the Plan as of
November 7
, 201
4
are fully vested after three years of service.
Certain employees that were previously part of the former Verizon 401(k) Plans that were merged into the Plan
during
2016 are fully vested after
3
years of service.
Certain other employees,
Frontier
union employees
and certain other employees
covered by collective bargaining agreements are immediately 100% vested in all contributions and allocated earnings thereon.
(
e)
N
otes Receivable from Participants
Participants in the Plan may request to borrow up to the lesser of 50% of their vested account balance or $50,000. The interest rate paid by the participant is equal to the prime interest rate in effect at the beginning of the month in which the loan is processed
plus 1%,
and remains fixed at that rate for the term of the loan.
The maximum loan repayment period is five years, or
currently
up to
fifteen
years
for the purchase of a primary residence.
Loan repayments are after tax, and are credited to each
p
articipant’s account as the payments are made. A participant may repay a loan in full at any time by remitting his/her payment directly to
Fidelity Management Trust Company (the “Trustee”),
the trustee of the Plan.
Any distribution following a participant’s termination of employment is reduced by any loan balance outstanding at the time of such distribution
.
FRONTIER COMMUNICATIONS 401(k) SAVINGS PLAN
Notes to the Financial Statements
December 31, 2018
and 2017
(f)
Payment of Benefits
P
articipants
may
keep any portion of their account in the Plan beyond the attainment of age 70 ½.
Inactive participants
, after
age 70 ½
,
must take
the required minimum
distribution of their balances on or before April 1st of the calendar year after they retire.
Upon termination of employment or permanent disability, a participant is entitled to receive a lump
-
sum distribution in cash
,
or stock for any balance invested in the Frontier Communications Corporation Common Stock Fund
,
for the vested portion of his/her account
.
Participants may a
lso elect to receive between 2
and 20 annual installments or monthly installments over a period equal to the life expectancy of the participant. If the value of the terminating participant's vested account balance does not exceed $
5
,000, the participant’s balance will be distributed automatically at that time.
In-service withdrawals
from a participant’s vested account balance
are also permitted under limited circumstances such as attaining age 59
½
or financial hardship.
(g)
Forfeitures
Forfeitures of nonvested
Frontier
contributions are applied first to the payment of Plan administrative expenses, to the extent not previously paid by
Frontier
, with any excess being applied to reduce future contributions of
Frontier
.
Forfeited nonvested Frontier contributions
of approximately $
1,860,
000
were used to partially fund Frontier contributions for the year ended December 31, 201
8
.
As of
December
31,
201
8
,
forfeited nonvested
Frontier
contributions that remain
ed
to be used by Frontier
totaled
approximately
$
1,061,0
00
.
(h)
Administrative
Expenses
The administrative expense
s
of the Plan are paid by the
P
lan or by
Frontier
.
The majority of Plan administrative
expenses
paid by
p
articipants
relate to
investment management fees
which are deducted from participant account balances.
(i
)
Dividends
Dividends attributable to the participant’s interest in the Frontier Communications Corporation Common Stock Fund
a
re reinvested in the Frontier Communications Corporation Common Stock Fund, unless the participant elect
s
, in a manner approved by the Retirement Plan Committee of the Frontier Board of Directors, to receive dividends entirely in cash. All cash dividends
are
received by the
Trustee and
distributed to participants in cash no later than 90 days after the close of the Plan year.
In 2018
,
Frontier’s Board of Directors suspended the quarterly cash dividend on the Company’s common stock and no dividends were paid in 2018.
(
j
)
I
nvestments
T
he Plan’s investments are in
a
Master Trust, which
provides
for the investment of assets of the Plan and
another
Fro
ntier sponsored retirement plan
. Each participating retirement plan has an undivided interest in the Master Trust. The assets of the Master Trust are held by the Trustee
,
who is responsible for the control and disbursement of the funds and portfolios of the Plan. Investment fees are charged against the earnings of the funds and portfolios.
Interest, dividends and
net
dep
reciation
in the fair value of investments are allocated to the Plan on a daily basis based upon the Plan’s participation in the various investment funds and portfolios that comprise the Master Trust as a percentage of the total participation in such funds and portfolios.
E
ffective April 30, 2018, the Verizon and AT&T Stock Funds
(the “Stock Funds”)
were removed as investment options in the Plan.
Participants
that were
invested in the Stock Funds
had to
decide whether to exchange all or a portion of their balance in the fund to another investment option or
FRONTIER COMMUNICATIONS 401(k) SAVINGS PLAN
Notes to the Financial Statements
December 31, 2018
and 2017
withdraw their available stock fund balance prior to April 30, 2018. If participants did not make an election to exchange their available Stock Funds these funds were liquidated, and
the
cash proceeds
were
invested in the Fidelity Freedom Funds based on current age of participant assuming a retirement of age 65.
A
participant is restricted from investing more than 15% of
a participant’s balance or
current contributions in
the Frontier
Communications Corporation
Common S
tock
Fu
nd
.
(
k
)
Registered Investment Company
Fees
Investments in
r
egistered
investment companies
(mutual f
unds)
are subject to sales charges and annual fees for marketing and distribution costs of the funds. These fees are deducted prior to the allocation of the investment earnings activity and thus not separately identifiable as an expense of the Plan.
(2)
Summary of Significant Accounting Policies
(a)
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method of accounting.
(b)
Use of Estimates
The preparation of
the
Plan’s
financial statements in conformity with accounting principles generally accepted in the United States of America
(“U.S. GAAP”)
requires management to make estimates and assumptions that affect the reported amount of assets, liabilities,
and
changes therein, and disclosures of contingent assets and liabilities
.
Actual results may differ from these estimates.
(c)
I
nvestments
The
Master Trust
’s
investments are stated at fair value.
Shares of
registered investment companies
and money market funds
are valued at quoted market prices, which represent the net asset value of shares held by the
Master Trust
.
The Plan’s interest in collective trusts are
valued at Net Asset Value (
“
NAV
”
) based
on information reported by the investment advisor using the audited financial statements of the collective trust at year-end.
The NAV is used as a practical expedient to estimate fair value.
Common stock is valued at its quoted market price as of the end of the Plan year.
I
n addition, the Plan offers a brokerage option,
BrokerageL
ink
, whereby participants invest in publicly traded
registered investment companies
not offered directly by
the Plan.
P
urchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded on the
ex-
dividend date.
The net
de
preciation
in fair value
of investments
in the Master Trust
consists of the net realized gains and losses on the disposal of investments during
201
8
and the net unrealized
de
preciation of the market value for the investments remaining in the
Master Trust
as of December
31,
201
8
.
(
d
)
Payment of Benefits
Benefits
to participants
are recorded when paid.
(
e
)
Notes Receivable from Participants
Notes receivable from
p
articipants
are stated at their unpaid principal balance plus any accrued but unpaid interest.
Delinquent
notes receivable
are reclassified as distributions based upon the terms of the Plan document.
(f)
Revenue Credit Account
The Plan has a revenue credit account which is a suspense account funded with excess revenue generated by the Plan
through October 1, 2018
.
These funds may be used to pay plan expenses or
FRONTIER COMMUNICATIONS 401(k) SAVINGS PLAN
Notes to the Financial Statements
December 31, 2018
and 2017
allocated to each participant who has an account balance at the time of allocation.
After October 1, 2018, any revenue credits generated by certain funds are passed back to the participants in those funds.
(
g
)
Recent Accounting Pronouncements
In February 2017, the Financial Accounting Standards Board (
“
FASB
”
) issued Accounting Standards Update (
“
ASU
”
) No. 2017-06,
“
Plan Accounting: Defined Benefit Pension Plans (
“
Topic 960
”
) Defined Contribution Pension Plans (
“
Topic 962
”
) Health and Welfare Benefit Plans (
“
Topic 965
”
), Employee Benefit Plan Master Trust Reporting.
”
The amendments in this
u
pdate clarify presentation requirements for a plan’s interest in a master trust and require more detailed disclosures of the plan’s interest in the master trust.
The amendments in this update are effective for fiscal years beginning after December 15, 2018. Early adoption is permit
t
ed and requires retrospective presentation for all periods in which financial statements are presented. The Plan has elected not to adopt for the current plan year, and is reviewing the impact that adoption would have on its financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The amendments in this new guidance remove, modify, and add certain disclosure requirements related to fair value measurements covered in Topic 820. The new standard is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted with certain requirements applied prospectively, and all other requirements applied retrospectively to all periods presented. The Plan has elected not to adopt for the current plan year and is reviewing the impact the adoption would have on its disclosures.
(3
)
Investment in Master Trust
The Plan’s specific interest in the Master Trust is credited or charged for contributions, transfers and benefit payments relating to its participants. Realized gains and losses and changes in net unrealized
de
preciation on investments, income from investments and expenses are allocated to the Plan based on the Plan’s specific interest in the net assets of the Master Trust. At December 31, 201
8
and 201
7
, the Plan’s interest in the net assets of the Master Trust was approximately
94
%
and 95%, respectively
.
FRONTIER COMMUNICATIONS 401(k) SAVINGS PLAN
Notes to the Financial Statements
December 31, 2018
and 2017
The following table presents the fair values of investments for the Master Trust as of December 31, 201
8
and 201
7
:
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Frontier Communications
|
|
|
|
|
|
|
|
|
Corporation Common Stock
|
|
$
|
1,581,567
|
|
$
|
3,525,506
|
|
|
Verizon Communications Inc.
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
-
|
|
|
261,564,299
|
|
|
AT&T Inc. Common Stock
|
|
|
-
|
|
|
92,161,942
|
|
|
BrokerageLink Common Stock
|
|
|
338,507
|
|
|
351,090
|
|
|
Registered Investment Companies
|
|
|
2,219,250,276
|
|
|
2,218,964,259
|
|
|
Collective Trusts
|
|
|
235,326,125
|
|
|
249,044,085
|
|
|
Money Market Funds
|
|
|
23,950,875
|
|
|
15,663,567
|
|
|
Investments, at fair value
|
|
|
2,480,447,350
|
|
|
2,841,274,748
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
63
|
|
|
527,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,480,447,413
|
|
$
|
2,841,802,257
|
|
|
|
|
|
|
|
|
|
|
Investment income
(loss)
of the Master Trust for the year ended December 31, 201
8
is as follows:
|
|
|
|
|
|
|
Net depreciation in fair value of investments
|
|
$
|
(338,810,388)
|
|
|
Interest and dividends
|
|
|
163,019,400
|
|
|
|
|
|
|
|
|
|
|
$
|
(175,790,988)
|
|
|
|
|
|
|
|
Fair value is defined under U.S. GAAP as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value under U.S. GAAP must maximize the use of observable inputs and minimize the use of unobservable inputs. In addition, U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the input
s used in measuring fair value.
The input levels in the hierarchy of fair value measurements ar
e
as follows:
|
|
Input Level
|
Description of Input
|
Level 1
|
Observable inputs such as quoted prices in active markets for identical assets.
|
Level 2
|
Inputs other than quoted prices in active markets that are either directly or indirectly observable.
|
Level 3
|
Unobservable inputs in which little or no market data exists.
|
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while 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.
FRONTIER COMMUNICATIONS 401(k) SAVINGS PLAN
Notes to the Financial Statements
December 31, 2018
and 2017
The following tables represent the Master Trust’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 201
8
and 201
7
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Trust Fair Value Measurements at December 31, 2018
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Frontier Communications Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
$
|
1,581,567
|
|
$
|
1,581,567
|
|
$
|
-
|
|
$
|
-
|
BrokerageLink Common Stock
|
|
|
338,507
|
|
|
338,507
|
|
|
-
|
|
|
-
|
Registered Investment Companies
|
|
|
2,219,250,276
|
|
|
2,219,250,276
|
|
|
-
|
|
|
-
|
Collective Trusts
(a)
|
|
|
235,326,125
|
|
|
-
|
|
|
-
|
|
|
-
|
Money Market Funds
|
|
|
23,950,875
|
|
|
23,950,875
|
|
|
-
|
|
|
-
|
Total investments at fair value
|
|
$
|
2,480,447,350
|
|
$
|
2,245,121,225
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Trust Fair Value Measurements at December 31, 2017
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Frontier Communications Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
$
|
3,525,506
|
|
$
|
3,525,506
|
|
$
|
-
|
|
$
|
-
|
Verizon Communications Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
261,564,299
|
|
|
261,564,299
|
|
|
-
|
|
|
-
|
AT&T Inc. Common Stock
|
|
|
92,161,942
|
|
|
92,161,942
|
|
|
-
|
|
|
-
|
BrokerageLink Common Stock
|
|
|
351,090
|
|
|
351,090
|
|
|
-
|
|
|
-
|
Registered Investment Companies
|
|
|
2,218,964,259
|
|
|
2,218,964,259
|
|
|
-
|
|
|
-
|
Collective Trusts
(a)
|
|
|
249,044,085
|
|
|
-
|
|
|
-
|
|
|
-
|
Money Market Funds
|
|
|
15,663,567
|
|
|
15,663,567
|
|
|
-
|
|
|
-
|
Total investments at fair value
|
|
$
|
2,841,274,748
|
|
$
|
2,592,230,663
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient 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 amounts presented in the Master Trust
.
(
4
)
Party
-in Interest
Transactions
Certain
investments in the Master Trust
are
in shares of
registered investment companies
and
a
collective
trust
that
are
managed by
an entity related to
Fidelity Management Trust Company
.
Fidelity Management Trust Company
acts
as
the trustee as defined by the Plan
and
,
therefore
,
transactions
involving these asset
s
qualify as party-in-interest transactions.
Notes receivable from participants
also qualify as party-in-interest
transactions.
The Master Trust held Frontier Communications Corporation Common Stock amounting to
$
1,581,567
and
$3,525,506 as of December 31, 201
8
and 201
7
, respectively.
(
5
)
Plan Termination
Although it has not expressed any intention to do so,
Frontier
has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA, Collective Bargaining Agreements and the National Labor Relations
Act
. In the event of plan termination, participants will become 100% vested in their accounts.
FRONTIER COMMUNICATIONS 401(k) SAVINGS PLAN
Notes to the Financial Statements
December 31, 2018
and 2017
(
6
)
Tax Status
The Plan
received a favorable
determination letter
from the Internal Revenue Service
dated
November 17, 2017
,
indicating that it meets the requirements of Section 401(a) and 501(a) of the
IRC
and has qualified status as an employee retirement plan
.
Although the Plan has been amended, the Plan Administrator and the Plan’s tax counsel believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
U.S. GAAP
require
s
plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the
P
lan has taken an uncertain position that more likely than not would not be sustained upon examination by a government authority. The
P
lan
A
dministrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31,
201
8
, 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.
(
7
)
Risks and Uncertainties
The Plan offers a number of investment options including
Frontier
’s common stock and a variety of pooled investment funds, some of which are registered investment companies. The investment funds principally include U.S. equities, international equities, and fixed income securities. Investment securities, in general, are exposed to various risks, such as interest rate, credit, and overall market volatility risk. Due to the level of risk associated with these investments, it is at least reasonably possible that changes in their values 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.
The
Master Trust’s
exposure to a concentration of issuer risk is limited by the diversification of investments across all participant-directed fund elections except for the Frontier Communication
s Corporation Common Stock Fund,
w
hich
is
invested in the security of a single issuer. Additionally, the investments within certain participant-directed fund elections may be further diversified in
to varied financial instruments
.