Notes to Financial Statements
1.Description of Plan
The following description of the Allstate 401(k) Savings Plan (the “Plan”), sponsored by The Allstate Corporation (the “Company”), provides only general information. Participants should refer to the plan document for a more complete description of the Plan’s provisions.
General — Regular full-time and regular part-time employees of subsidiaries of the Company, with the exception of those employed by the Company’s international subsidiaries, InfoArmor, Inc., and SquareTrade Inc., are eligible to participate in the Plan. There is no waiting period to enroll in the Plan, provided employees are at least 18 years old.
The Plan is a defined contribution plan consisting of a profit sharing and stock bonus plan containing a cash or deferred arrangement which is intended to meet the requirements of Sections 401(a) and 401(k) of the Internal Revenue Code of 1986 (the “Code”). The stock bonus portion of the Plan includes an employee stock ownership plan (“ESOP”) which is intended to meet the requirements of Section 409 and Section 4975(e)(7) of the Code. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
On July 10, 2020, the Esurance Insurance Services, Inc. ("Esurance") 401(k) Plan, a defined contribution plan sponsored by Esurance, a subsidiary of the Company, was merged with and into the Plan. As a result, all participants in the Esurance 401(k) Plan became participants in the Plan. In conjunction with the merger, net assets in the amount of $192,532,732 from the Esurance 401(k) Plan were transferred into the Plan.
On December 17, 2020, the Plan's 401(k) Committee approved a resolution to permit National General Holdings Corp. (together with its affiliates and subsidiaries) to adopt the Plan, effective on January 4, 2021.
On June 14, 2021, the Plan's 401(k) Committee approved resolutions to provide employees transferred in connection with the sale of Allstate Life Insurance Company and Allstate Life Insurance Company of New York with the company match in the year of transfer and vesting of the employer match account for non-highly compensated employees.
On September 24, 2021, the Plan's 401(k) Committee approved a resolution to permit Safe Auto Insurance Group, Inc. (together with its affiliates and subsidiaries) to adopt the Plan, effective on October 1, 2021.
Administration — The Plan is administered by the Administrative Committee. Investment transactions are authorized by the Plan’s Investment Committee. Members of the Administrative and Investment Committees are appointed by the 401(k) Committee. The 401(k) Committee is comprised of various Allstate Insurance Company officers as described in the Plan.
Trustee of the Plan — The Northern Trust Company holds Plan assets as trustee under the Allstate 401(k) Savings Plan Trust.
Contributions — Each year, employees may contribute up to 50% of eligible annual compensation through a combination of pre-tax, Roth 401(k), and after-tax contributions, subject to Internal Revenue Code limitations. All eligible employees hired or rehired are automatically enrolled in the Plan at a 5% pre-tax contribution rate, unless the participant declines enrollment or changes the contribution rate within the first 45 days of eligibility. Participants age 50 or older have the option to make additional pre-tax or Roth 401(k) contributions (“Catch-Up” contributions). Employees may also roll over pre-tax or Roth 401(k) amounts representing distributions from other qualified defined benefit or defined contribution plans. The Company match for a plan year is 80 cents for every pre-tax and/or Roth 401(k) dollar that a participant contributes to the Plan during the plan year, up to 5% of eligible compensation. Employer contributions are invested in accordance with participant elections.
Participant Accounts — Individual accounts are maintained for each Plan participant. Each participant’s account is credited with the participant’s contribution, allocations of the Company’s contribution and investment earnings and losses, and is charged with an allocation of administrative expenses. Accounts may increase by rollovers and decrease by rollovers and withdrawals. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Vesting — Participants hired prior to March 1, 2009 were immediately vested in their contributions and the Company’s contributions plus earnings thereon. Employees hired on or after March 1, 2009 are immediately vested in their contributions and will fully vest in the Company’s contributions after three years of vesting service.
Investment Options — Upon enrollment in the Plan, a participant may direct employee contributions to any or all of the Plan's investment options. If a participant does not make an investment election, employee contributions will be invested in the Target Retirement Date Fund that corresponds with the participant’s birth date and assumes a retirement date and account distribution at age 65. Participants may change their investment elections at any time, with limited trading restrictions, but without
redemption restrictions. The funds transact at net asset value on a daily basis. Effective September 9, 2021, State Street Global Advisors (SSGA) replaced Northern Trust as the underlying investment manager for the Target Retirement Date Funds.
Participant Notes Receivable — Participants may borrow from their employee contribution and rollover contribution accounts. The loan amount must be at least $1,000 up to a maximum equal to the lesser of: (i) 50% of their vested account balance, or (ii) $50,000, and will be taken from the participant’s accounts in the following order: pre-tax, Roth 401(k), rollover, and after-tax. Loan transactions are treated as a proportional transfer from/to the investment funds and to/from the loan fund. Loan terms range from 6 to 48 months for a general-purpose loan and 49 to 180 months for a primary residence loan. Loans are secured by the participant’s account balance and bear interest at the prime rate, plus one percent, as published in the Wall Street Journal in effect on the 15th day of the month prior to the first day of the quarter in which the loan is requested. Generally, principal and interest are paid by participants ratably through payroll deductions.
Payment of Benefits — Upon termination of service, a participant is entitled to a complete withdrawal of his or her vested account balance, net of any outstanding loans. Partial withdrawals are also permitted under the Plan subject to restrictions. Participants may leave their account balance in the plan after termination, if the balance is greater than $1,000; however, after the age of 72 (or 70½ if you reached age 70½ prior to January 1, 2020), required minimum distributions must be withdrawn. If the value of a vested account balance on or after a participant’s termination date does not exceed $1,000, the participant will receive an automatic lump sum distribution of their vested account balance.
Forfeited Accounts — As of December 31, 2021 and 2020, forfeited nonvested accounts totaled $6,240,625 and $3,099,484, respectively, and are reported in other assets. These accounts will be used to reduce future employer contributions. During the years ended December 31, 2021 and 2020, employer contributions were reduced by $3,099,484 and $3,153,761, respectively, due to forfeited nonvested accounts.
2.Summary of Accounting Policies
Basis of Accounting — The Plan’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Subsequent events were evaluated through June 27, 2022, the date the financial statements were issued.
Change in Presentation — Beginning in 2021, the supplementary information by fund was removed from the statement of net assets available for benefits and changes in net assets available for benefits. This change was applied on a retrospective basis.
Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Risks and Uncertainties — The Plan utilizes various types of investments, including institutional index funds, a stable value fund and common stock. These investments are subject to market risk, the risk that losses will be incurred due to adverse changes in creditworthiness, equity prices and interest rates. It is reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the financial statements.
The Novel Coronavirus Pandemic or COVID-19 ("Coronavirus") resulted in governments worldwide enacting emergency measures to combat the spread of the virus, including travel restrictions, government-imposed shelter-in-place orders, quarantine periods, social distancing, and restrictions on large gatherings. These measures have generally moderated, with periodic changes in response to local conditions. There is no way of predicting with certainty how long the pandemic might last. The Company continues to closely monitor and proactively adapt to developments and changing conditions. Currently, it is not possible to reliably estimate the impact to the Plan's operations. If the financial markets or the overall economy are impacted for an extended period, the future investment results of the Plan may be materially adversely affected.
On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act provided temporary relief for retirement plan sponsors and their participants with respect to employer contributions, distributions and participant loans. The provisions of the CARES Act are effective and operationalized immediately, prior to amending the plan document. The 401(k) Committee has approved the implementation of certain relief provisions included in the CARES Act, including suspending required loan repayments due between March 27, 2020 and December 31, 2020 by twelve months, allowing Coronavirus-related distributions up to $100,000 to be taken without an early-withdrawal penalty, and waiving required minimum distributions in 2020. The future effects of these provisions on the Plan’s net assets available for benefits and changes in net assets available for benefits are uncertain. The Plan will be formally amended by the end of the 2022 plan year.
Investment Valuation and Income Recognition — Plan investments are stated at fair value except for fully benefit-responsive investment contracts ("FBRIC"), which are reported at contract value. The Stable Value Fund is a FBRIC and stated at contract
value, which is the amount Plan participants would receive if they were to initiate permitted transactions under the terms of the Plan.
Purchases and sales of securities are recorded on a trade-date plus one basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Administrative Expenses — Investment management fees, recordkeeping fees, and trustee fees along with other administrative expenses charged to the Plan for investments in each of the Plan’s investment options are deducted from income earned on a daily basis and are not separately reflected. Consequently, fees and expenses are reflected as a reduction of investment return for such investments.
Benefits Paid to Participants and Participant Notes Receivable — Benefits paid to participants and participant notes receivable are recorded upon distribution. Amounts allocated to accounts of persons who have elected to withdraw from the Plan, but have not yet been paid as of year end are included in other assets on the Statements of Net Assets Available for Benefits. Participant notes receivable are measured at their unpaid principal balance plus any accrued but unpaid interest.
3.Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA and the Internal Revenue Code. In the event that the Plan is terminated, participants would be 100% vested in their accounts.
4.Tax Status
The Internal Revenue Service ("IRS") has determined and informed the Company by a letter, dated August 17, 2017, that the Plan and related trust were designed in accordance with applicable sections of the Code. The plan document has been amended since receiving the determination letter. The Plan’s management believes that the Plan is currently designed and is 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, and there are no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The IRS is not currently examining the Plan.
5.Fully Benefit-Responsive Investment Contracts
The Stable Value Fund holdings include investment contracts called synthetic guaranteed investment contracts comprised of investments in the common collective trusts plus a wrapper contract. The wrapper contract is issued by a financial institution and the contract guarantees to provide a specific interest rate to be credited to the contract plus provide for participant liquidity at contract value in certain situations.
The Stable Value Fund’s wrapper contracts are benefit-responsive and are thus eligible for contract-value reporting. Funds may be withdrawn pro-rata from all the Stable Value Fund’s investment contracts at contract value determined by the respective issuing companies to pay benefits and to make participant-directed transfers to other investment options pursuant to the terms of the Plan after the amounts in the Stable Value Fund’s Short-Term Investment Fund reserve are depleted.
The wrapper contracts wrap underlying assets which are held in the trust and owned by the Stable Value Fund. The underlying assets are comprised of common collective trusts which may include a variety of high quality fixed income investments selected by the fund manager consistent with the Stable Value Fund’s investment guidelines. High quality, as defined by the Stable Value Fund’s investment guidelines, means the average credit quality of all of the investments backing the Stable Value Fund contracts is AA/A1 or better as measured by S&P Global’s or Moody’s credit rating services. The investments in the common collective trusts are used to generate the investment returns that are utilized to provide for interest rates credited through the wrapper contracts.
The wrapper contracts are benefit-responsive in that they provide that participants may execute transactions from the Stable Value Fund according to Plan provisions at contract value. Contract value represents contributions made to the Stable Value Fund, plus earnings, less participant withdrawals. The interest rates in wrapper contracts are reset monthly, based on market rates of other similar investments, the current yield of the underlying investments, the spread between the market value and contract value of the investments held by the contract, and the financial duration of the contract investments. All contracts have a minimum crediting rate of 0%, but ranged between 1.61% and 1.87% during 2021. Certain events, such as plan termination, or a plan merger initiated by the plan sponsor, or changes to Plan provisions not approved by the issuers of the Stable Value Fund’s wrapper contracts, may limit the ability of the Stable Value Fund to transact at contract value or may allow for the termination of the wrapper contracts at less than contract value. Plan Management does not believe that any events that may limit the ability of the Stable Value Fund to transact at contract value are probable.
Changes in market interest rates affect the yield to maturity and the market value of the investments in the common collective trusts, and thus can have a material impact on the interest crediting rate. In addition, participant withdrawals and transfers from the Stable Value Fund are paid at contract value but funded through the market value liquidation of the investments in the
common collective trusts, which also may affect future interest crediting rates. If market interest rates rise and fair values of investments in the common collective trusts fall, the fair value may be less than the corresponding contract value. This shortfall in fair value will be reflected in future crediting rates by amortizing the effect into the future through an adjustment to interest crediting rates of the wrapper contracts. Similarly, if market interest rates fall and fair values of investments in the common collective trusts rise, the fair values of investments held by the wrapper contract may be greater than the corresponding contract value. This excess in fair value will also be reflected in future crediting rates through an amortization process similar to that when there is a fair value shortfall.
6.Fair Value of Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Statements of Net Assets Available for Benefits at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:
Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Plan can access.
Level 2: Assets and liabilities whose values are based on the following:
(a)Quoted prices for similar assets or liabilities in active markets;
(b)Quoted prices for identical or similar assets or liabilities in markets that are not active; or
(c)Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect the Plan’s estimates of the assumptions that market participants would use in valuing the assets and liabilities.
Category level in the fair value hierarchy for assets or liabilities is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Valuation techniques used maximize the use of observable inputs and minimize the use of unobservable inputs.
Summary of significant valuation techniques used for Level 1 and Level 2 assets and liabilities measured at fair value on a recurring basis
The Allstate Corporation Common Stock: The Company’s common stock is actively traded on the New York Stock Exchange and is valued based on unadjusted quoted prices.
Northern Trust Collective Short-Term Investment Fund: The collective short-term investment fund is valued using amortized cost which approximates fair value.
Investments excluded from the fair value hierarchy
Common and collective trust funds: Comprise funds that have daily quoted net asset values for identical assets in markets that are not active. The net asset values are primarily derived based on the fair values of the underlying investments in the fund, some of which are not actively traded.
The following table summarizes the Plan’s assets measured at fair value on a recurring basis as of December 31, 2021. There were no assets measured at fair value on a non-recurring basis as of December 31, 2021. There were no level 3 assets as of December 31, 2021.
| | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Level 1 | | Level 2 | | Total |
| Assets | | | | | | |
| The Allstate Corporation Common Stock | | $ | 610,047 | | | $ | — | | | $ | 610,047 | |
| Collective short-term investment fund | | — | | | 762 | | | 762 | |
| Total assets in the fair value hierarchy | | $ | 610,047 | | | $ | 762 | | | 610,809 | |
| | | | | | |
Assets measured at net asset value (1) | | | | | | 5,526,869 | |
| | | | | | |
Total assets at fair value | | | | | | $ | 6,137,678 | |
The following table summarizes the Plan’s assets measured at fair value on a recurring basis as of December 31, 2020. There were no assets measured at fair value on a non-recurring basis as of December 31, 2020. There were no level 3 assets as of December 31, 2020.
| | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Level 1 | | Level 2 | | Total |
| Assets | | | | | | |
| The Allstate Corporation Common Stock | | $ | 656,295 | | | $ | — | | | $ | 656,295 | |
| Collective short-term investment fund | | — | | | 2,253 | | | 2,253 | |
| Total assets in the fair value hierarchy | | $ | 656,295 | | | $ | 2,253 | | | 658,548 | |
| | | | | | |
Assets measured at net asset value (1) | | | | | | 4,815,029 | |
| | | | | | |
| Total assets at fair value | | | | | | $ | 5,473,577 | |
(1)Certain investments that were measured at net asset value per share (or its equivalent) are not required to be classified in the fair value hierarchy. The fair value amounts are intended to permit reconciliation of the fair value hierarchy to the line items in the Statements of Net Assets Available for Benefits.
7.Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net investment income per the financial statements to the Form 5500 for the years ended December 31, 2021 and 2020:
| | | | | | | | | | | |
| ($ in thousands) | 2021 | | 2020 |
| | | |
| Total net investment income per the financial statements | $ | 952,850 | | | $ | 615,486 | |
| Interest income on participant notes receivable | 3,997 | | | 5,396 | |
| Total net investment income per the Form 5500 | $ | 956,847 | | | $ | 620,882 | |
8.Related-Party Transactions
The Plan invests in The Northern Trust Collective Short Term Investment Fund and the NTI Emerging Markets Fund, which are collective investment funds managed by NTI, the investment advisor division of The Northern Trust Company, the trustee of the Plan. Fees paid by the Plan for investment management services associated with the Collective Short Term Investment Fund and the NTI Emerging Markets Fund were included as a reduction of the return earned on each fund. The Plan also invests in the common stock of The Allstate Corporation, the Plan’s sponsor.
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