Notes to Financial Statements
December 31, 2020
1. Description of the Plan
The PACCAR Inc Savings Investment Plan (the Plan) is a defined contribution plan covering substantially all non-union U.S. employees of PACCAR Inc and its U.S. subsidiaries (collectively, the Company). Covered employees are eligible to participate in the Plan and receive employer contributions immediately. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code (the Code). This description of the Plan provides only general information. Participants should refer to the Plan document for a complete description of the Plan’s provisions.
Contributions
Newly hired employees are automatically enrolled in the Plan at a pre-tax contribution rate of 5% unless they elect to not participate in the Plan within 45 days. Participants may elect to contribute no less than 1% and no more than 75% of their respective annual compensation (as defined in the Plan document) subject to the Code’s annual maximum of $19,500 for 2020. Participant contributions to the Plan are excluded from the participants’ current taxable earnings in accordance with the Code’s Section 401(k). Catch-up contributions are made available under the Plan for those participants age 50 and older. The maximum annual catch-up contribution for 2020 was $6,500.
For eligible participants, for every $1.00 contributed to the plan up to 5% of eligible pay, the Company makes a matching contribution of $1.00 towards the purchase of PACCAR common stock. Participant contributions (excluding age 50 catch-up deferrals) were matched to the lesser of 5% of the participants’ respective annual compensation or their annual salary deferrals (subject to certain Internal Revenue Service (the IRS) limits). The Company made matching contributions of $33,702,576 during 2020. Matching contributions are allocated to participant accounts each pay period. The Company’s rate of contribution and manner in which the Company makes its contribution shall be decided by the Company at its sole discretion with respect to each Plan year.
Participant Accounts
Individual accounts are maintained for all Plan participants that reflect their contributions and related Company matching contributions to the Plan and any earnings or losses on the Plan’s investments.
Vesting
Plan participants are immediately 100% vested in participant and Company matching contributions when made, plus any investment earnings thereon.
Investment Options
Upon enrollment in the Plan, participants may direct their contributions in whole percentage increments to any of the Plan’s fund options. The Plan designated the Fidelity Freedom Index Funds as the qualified default investment option for employees who do not make an active investment election. Participants may subsequently change their investment options for either existing or future contributions, subject to trading limitations on certain of the Plan’s individual fund options.
Participants have the ability to make an unlimited number of transfers-in or transfers-out, at any time, of some or all of their Company matching contribution balances held in the PACCAR Inc common stock fund into any of the other investment fund options within the Plan.
4
1. Description of the Plan (continued)
Notes Receivable from Participants
Except as noted below for the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") distributions, actively employed participants may borrow from their individual accounts a minimum of $1,000, up to the lesser of $50,000 reduced by the highest outstanding loan balance during the previous 12 months, 50% of the participants’ total account balance, or the participants’ total account balance excluding Company matching contributions. Loan terms range from 1 to 5 years, or up to 15 years for the purchase of a primary residence, and early payoffs can be made without penalty. The loans are secured by the balance in the participant’s account and bear interest at a fixed rate equal to the prime rate plus 1%, determined as of the loan date. Interest rates ranged from 4.25% to 9.50% on loans outstanding as of December 31, 2020. Principal and interest are repaid either through after-tax payroll deductions or by personal disbursements sent directly to Fidelity Management Trust Company (the Trustee). Loans outstanding do not affect the amount of annual matching contributions the Company pays to participants’ accounts. The number of loans that a participant can take is limited to two new loans per calendar year.
On March 30, 2020, the Plan adopted the distribution provision of the CARES Act that was signed into law on March 27, 2020. A CARES Act distribution allowed qualified participants to take COVID-19 related distributions up to $100,000 from the Plan beginning on or after January 1, 2020 and before December 31, 2020. In addition, qualified participants could take a CARES Act loan up to the lesser of $100,000 or 100% of the participant’s vested balance, between March 27, 2020 and September 22, 2020. Additionally, the Plan adopted the temporary loan repayment deferral provision of the CARES Act. The deferral provision adopted by the Plan allowed qualified participants who had Plan loan repayments to defer such repayments until December 31, 2020. The Plan also waived the required minimum distributions due during 2020.
Benefit Payments
Inactive Employees: Participants who leave the Company may choose a single cash payment, installment payments, partial payments or whole shares of PACCAR Inc common stock included in the participant’s account, plus a cash payment for the remaining balance, or have their account balance remain in the Plan until reaching age 72. Participants who leave the Company whose account balance is less than $1,000 will automatically receive a single cash payment. The Plan will establish an Individual Retirement Account for participants who leave the Company whose account balance is more than $1,000 but less than $5,000, unless they make an election to receive a distribution or rollover their balance to another retirement account.
Active Employees: Payment options for active employees are as follows: (1) employees who have reached age 59½ may elect to have their account balance distributed to them in one lump sum of either all or a portion of their participant account without penalty and (2) employees who have not reached 59½ and have established financial hardship have the option to withdraw from their participant account balance which may, in certain circumstances, result in a penalty.
Plan Termination
It is the intention of the Company that the Plan will continue indefinitely. However, should the Company elect to terminate the Plan subject to the provisions of ERISA, the termination date shall be treated as the valuation date, and the balances in the participants’ accounts will be distributed to them.
Expenses
Investment management fees are charged to the applicable investment fund. Participant recordkeeping fees are paid by the Company. Loans and other participant fees are charged to each applicable participant account.
5
PACCAR Inc
Savings Investment Plan
Notes to Financial Statements (continued)
2. Summary of Accounting Policies
Basis of Accounting
The financial statements and the accompanying notes are prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) using the accrual basis of accounting.
Investment Valuation and Income Recognition
The Plan’s investments are stated at fair value. Shares of mutual funds are valued based on a quoted market price to sell, which represents the net asset value of shares held by the Plan at year-end. The fair value of the participation units in commingled trust funds is based on the unadjusted net asset value per unit as determined by the sponsor of the fund based on the fair values of the underlying investments. There are currently no significant redemption restrictions on these investments.
Purchases 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.
Notes Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Notes receivable from participants that are determined to be uncollectible are recorded as a distribution based upon the terms of the Plan document. No allowance for credit losses has been recorded as of December 31, 2020 or 2019.
Payment of Benefits
Withdrawals and distributions to participants are recorded when paid.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.
Risks and Uncertainties
The Plan provides for various investment options. Investment securities, in general, are exposed to various risks, such as interest rate, market volatility and credit. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of 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 the value of participants’ account balances and the amounts reported in the financial statements.
Subsequent Events
The Company has evaluated subsequent events through the date that the financial statements were available to be issued on June 14, 2021
3. Investments
Assets held in the Plan are managed and investment transactions are executed by the Trustee or other outside mutual fund companies.
6
PACCAR Inc
Savings Investment Plan
Notes to Financial Statements (continued)
4. Fair Value of Financial Instruments
Fair value represents the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. The hierarchy of fair value measurement is described below.
Level 1 – Valuations are based on quoted prices that the Plan has the ability to obtain in actively traded markets for identical assets. Since valuations are based on quoted prices that are readily and regularly available in an active market or exchange traded market, valuation of these instruments does not require a significant degree of judgment.
Level 2 – Valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. The Plan had no financial instruments requiring Level 2 valuation.
Level 3 – Valuations are based on model-based techniques for which some or all of the assumptions are obtained from indirect market information that is significant to the overall fair value measurement and which require a significant degree of management judgment. The Plan had no financial instruments requiring Level 3 valuation.
The following methods and assumptions are used to measure fair value for assets subject to recurring fair value measurements:
The fair value of a money market fund, mutual funds, and PACCAR Inc common stock is based on quoted prices in active markets. These are categorized as Level 1.
The fair value of commingled trust funds is determined using the market approach and is based on the unadjusted net asset value (NAV) per unit as determined by the sponsor of the fund based on the fair values of underlying investments. These assets are collective investment trusts, and substantially all of these investments have no redemption restrictions or unfunded commitments. Securities measured at NAV per unit as a practical expedient are not classified in the fair value hierarchy.
The Plan’s assets subject to recurring fair value measurements at December 31, 2020 are as follows:
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Hierarchy
|
|
|
Measured at
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
NAV
|
|
|
Total
|
|
|
|
|
Financial instruments, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. money market fund
|
|
$
|
61,913
|
|
|
|
|
|
|
$
|
61,913
|
|
Commingled trust funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
$
|
719,324,767
|
|
|
|
719,324,767
|
|
International
|
|
|
|
|
|
|
26,468,806
|
|
|
|
26,468,806
|
|
U.S. mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
52,380,556
|
|
|
|
|
|
|
|
52,380,556
|
|
Fixed income
|
|
|
60,691,439
|
|
|
|
|
|
|
|
60,691,439
|
|
Asset allocation
|
|
|
467,417,027
|
|
|
|
|
|
|
|
467,417,027
|
|
PACCAR Inc common stock
|
|
|
727,716,286
|
|
|
|
|
|
|
|
727,716,286
|
|
|
|
$
|
1,308,267,221
|
|
|
$
|
745,793,573
|
|
|
$
|
2,054,060,794
|
|
7
PACCAR Inc
Savings Investment Plan
Notes to Financial Statements (continued)
4. Fair Value of Financial Instruments (continued)
The Plan’s assets subject to recurring fair value measurements at December 31, 2019 are as follows:
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hierarchy
|
|
|
Measured at
|
|
|
|
|
|
|
|
Level 1
|
|
|
NAV
|
|
|
Total
|
|
|
Financial instruments, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. money market fund
|
|
$
|
26,948
|
|
|
|
|
|
|
$
|
26,948
|
|
Commingled trust funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
|
|
|
$
|
603,564,677
|
|
|
|
603,564,677
|
|
International
|
|
|
|
|
|
|
27,674,215
|
|
|
|
27,674,215
|
|
U.S. mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
62,583,264
|
|
|
|
|
|
|
|
62,583,264
|
|
Fixed income
|
|
|
57,393,068
|
|
|
|
|
|
|
|
57,393,068
|
|
Asset allocation
|
|
|
416,247,589
|
|
|
|
|
|
|
|
416,247,589
|
|
PACCAR Inc common stock
|
|
|
793,287,176
|
|
|
|
|
|
|
|
793,287,176
|
|
|
|
$
|
1,329,538,045
|
|
|
$
|
631,238,892
|
|
|
$
|
1,960,776,937
|
|
5. Income Tax Status
The Plan has received a determination letter from the IRS dated March 16, 2018, stating that the Plan is qualified under Section 401(a) of the Code and, therefore, the related trust is exempt from taxation. Subsequent to this determination by the IRS, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code, and therefore, believes the Plan, as amended is qualified and the related trust is tax-exempt.
Accounting principles generally accepted in the United States require Plan management to evaluate uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The plan administrator has analyzed the tax positions taken by the Plan and has concluded that as of December 31, 2020 and 2019, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
6. Transactions with Parties in Interest
The Plan invests in the common stock of the Plan’s sponsor, PACCAR Inc, which is purchased by the Trustee on the open market at fair value. The Plan made purchases totaling $194,261,423 and sales totaling $329,458,586 of PACCAR Inc common stock during 2020. The Plan received dividends on PACCAR Inc common stock totaling $35,237,498 in 2020. Dividends receivable were $6,295,516 and $23,734,350 at December 31, 2020 and 2019, respectively.
As of December 31, 2020 and 2019, the Plan held investments issued by affiliates of the Trustee totaling $984,018,273 and $836,021,620, respectively.
8
Supplemental Schedule
9
PACCAR Inc
Savings Investment Plan
EIN: 91-0351110 Plan Number: 002
Schedule H, Line 4i – Schedule of Assets
(Held at End of Year)