Notes to Financial Statements
December 31, 2020 and 2019
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1.
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Description of the Plan
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The following brief description of the Macy's, Inc. 401(k) Retirement Investment Plan (the "Plan") is provided for general information purposes only. Participants should refer to the Plan document for more complete information.
General
The Plan is sponsored and administered by Macy’s, Inc. (“Macy's,” the “Company”, the “Plan Administrator” or the "Employer"). The Plan is a defined contribution plan and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and U.S. tax law. Effective October 1, 2006, the Plan was amended to establish a Macy's Employee Stock Ownership Plan (“ESOP”) within the Macy's Stock Fund, under Section 4975(e)(7) of the Internal Revenue Code. This feature allows members with accounts in the Macy's Stock Fund to elect to either reinvest employer dividends into their Plan accounts or to receive these dividends in cash each quarter.
Eligibility
Effective January 1, 2016, Regular, Full-Time employees are eligible to immediately participate in the Plan. After one year of service of at least 1,000 hours and after reaching a minimum age of 21, all employees are eligible for participation under the Company-Match Eligible Program in the Plan.
Contributions
Participants may elect to contribute an amount equal to 1% to 50% (subject to certain limitations) of the participant's eligible compensation. A participant may elect to make these contributions on a pre-tax basis pursuant to Section 401(k) of the Internal Revenue Code or on an after-tax basis, including Roth compensation deferrals. The Plan offers various investment options and participants direct the investment of their contributions into the various investment options offered by the Plan. A maximum of 25% of a participant’s account balance and/or future savings may be elected for the Macy's Stock Fund.
Company contributions are made as soon as administratively feasible after year end. Company contributions, based on the appropriate matching contribution rate when combined with forfeitures, are contributed in cash directly to the Plan following the participants' investment elections. For the 2020 and 2019 Plan years, the contributions up to 6% of eligible compensation made by participants not eligible for pension credits were considered “basic savings” which were eligible for matching Company contributions. For such contributions, the Company contribution rates were equal to 100% on the first 1% of basic savings and 50% on the next 5% of basic savings.
Forfeited nonvested accounts of participants who terminate employment are applied to participants' accounts in accordance with Plan provisions. During the 2020 and 2019 Plan years, forfeited nonvested accounts totaled approximately $3,323,000 and $1,549,000, respectively.
4
MACY'S, INC.
401(k) RETIREMENT INVESTMENT PLAN
Notes to Financial Statements - Continued
December 31, 2020 and 2019
Participant Accounts
Each participant's account is credited with the participant's contributions and an allocation of each fund's earnings or losses. Allocations are based on participant account balances. As soon as administratively feasible after the end of each Plan year, the Company's applicable matching contributions are credited to the eligible individual accounts.
Vesting
Participants are immediately 100% vested in their own contributions and become 100% vested in the Company's contributions after 2 years of service. 100% vesting is also achieved through normal retirement, death or disability.
Participant Loans and Withdrawals
Participants may borrow from their accounts up to a maximum amount equal to the lesser of $50,000 or 50% of their vested account balance. All loans must be repaid within five years and are also subject to certain other conditions as to security, a reasonable rate of interest and repayment schedules. The rate of interest applied to each loan is determined on the date of the loan by the Macy's, Inc. Pension and Profit Sharing Committee.
Participants are generally permitted to make withdrawals of their after-tax contributions and earnings thereon at any time. Withdrawals of pre-tax contributions are subject to the hardship rules of Section 401 of the Internal Revenue Code and Roth withdrawals are subject to a five-year holding period. At termination, participants may elect to receive the balance of their vested account either in the form of a lump sum payment or in a variety of annuity forms.
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2.
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Summary of Significant Accounting Policies
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The Plan entered into the Macy's, Inc. Defined Contribution Plans Master Trust, formerly known as The Federated Department Stores, Inc. Defined Contribution Plans Master Trust (the “Master Trust”) Agreement with JP Morgan Chase Bank, formerly known as The Chase Manhattan Bank (the “Trustee”). As of December 31, 2020 and 2019 the Master Trust holds the assets of the Plan exclusively. Under the terms of the Master Trust, the Trustee serves as Trustee custodian for the Master Trust.
The Macy's, Inc. Pension and Profit Sharing Committee selects a group of investment managers who determine purchases and sales of diversified investments for the respective portions of the assets in the Master Trust managed by them.
The accompanying financial statements of the Plan have been prepared on the accrual basis of accounting in accordance with United States generally accepted accounting principles ("U.S. GAAP"). Investments held by a defined contribution plan are required to be reported at fair value, except for fully benefit-responsive investment contracts. Contract value is the relevant measurement for the portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants normally would receive if they were to initiate permitted transactions under the terms of the Plan.
5
MACY'S, INC.
401(k) RETIREMENT INVESTMENT PLAN
Notes to Financial Statements - Continued
December 31, 2020 and 2019
Investments, where applicable, are reported at fair value as determined by quoted market prices on an active market (see Note 3). Purchases and sales of securities are recorded on a trade-date basis. Realized gains and losses on the sale of securities are reported on the average cost method.
The Plan provides for investments in various investment securities. Investment securities, in general, are exposed to various risks, such as interest rate, credit, overall market volatility, political, currency and regulatory risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such change could materially affect the amounts reported in the Statements of Net Assets Available for Benefits.
Dividend income is recorded on the ex-dividend date. Interest income from other investments is recorded as earned on an accrual basis.
The Master Trust holds certain synthetic guaranteed investment contracts (“synthetic GIC's”) which meet the fully benefit-responsive investment contract criteria and are reported at contract value. Insurance contracts have been put in place to cover various underlying fixed income instruments, primarily U.S. treasury bonds, other government bonds, mortgage-backed securities, asset-backed securities and corporate bonds. In determining the Net Assets Available for Benefits, the synthetic GIC's are recorded at their contract value, which is equal to principal balance plus accrued interest.
Contract value, as reported to the Plan by the Trustee, represents contributions made under the contract, plus earnings, less benefits paid and expenses charged. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value.
There are no reserves against contract value for credit risk of the contract issuer or otherwise. The crediting interest rate is based on a formula agreed upon with the issuer.
Generally, crediting interest rates are reviewed and reset quarterly and guarantee a positive return. The average yield was 0.48% for 2020 and 1.94% for 2019 and the average crediting rate was 1.98% and 2.40% at December 31, 2020 and 2019, respectively.
Certain events limit the ability of the Plan to transact at contract value with the issuer. Such events include the following: (1) amendments to the Plan documents (including complete or partial Plan termination or merger with another plan), (2) bankruptcy of the Plan sponsor or other Plan sponsor events (for example, divestitures or spin-offs of a subsidiary) that cause a significant withdrawal from the Plan, or (3) the failure of the trust to qualify for exemption from federal income taxes or any required prohibited transaction exemption under ERISA. 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.
The synthetic GICs do not permit the insurance company to terminate the agreement except under certain circumstances per the terms of the agreement. The Company and Plan may terminate the agreement upon 30 days' notice.
6
MACY'S, INC.
401(k) RETIREMENT INVESTMENT PLAN
Notes to Financial Statements - Continued
December 31, 2020 and 2019
Participant loans are valued at their unpaid principal balance plus any accrued but unpaid interest.
Benefits are recorded when paid.
The preparation of financial statements in conformity with U.S. GAAP requires the Plan Administrator to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates and assumptions are subject to inherent uncertainties, which may result in actual amounts differing from reported amounts.
Effective March 1, 2021, the Plan was amended such that all employees are eligible for voluntary Immediate Participation in the Plan. This amendment did not revise the eligibility requirements for participation under the Company-Match Eligible Program in the Plan.
All of the Plan's investments are included in the Master Trust and are held by the Trustee.
The Trustee under the Master Trust, in accordance with the trust agreement, invests all contributions to the Plan among several investment funds. The funds are:
Stable Value Fund - consisting primarily of high quality fixed-income and stable value products.
S&P 500 Stock Index Fund - consisting primarily of shares of companies included in the S&P 500 Composite Stock Price Index.
Small/Mid Cap Stock Fund - consisting primarily of small and medium capitalization domestic equity securities.
International Stock Fund - consisting primarily of stocks of companies not based in the United States of America.
Macy's Stock Fund - consisting primarily of the Company's registered common stock.
Target Retirement Date Funds - consisting primarily of institutionally priced Vanguard mutual funds, which hold a mixture of equity securities and fixed income instruments.
Self-Directed Brokerage - consisting primarily of SEC registered mutual funds.
Investments held by the Plan are stated at fair value in accordance with ASC Topic 820. 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 (an exit price). ASC Topic 820 establishes a framework for measuring fair value and requires additional disclosures about fair value measurements.
7
MACY'S, INC.
401(k) RETIREMENT INVESTMENT PLAN
Notes to Financial Statements - Continued
December 31, 2020 and 2019
The ASC Topic 820 fair value hierarchy consists of three levels: Level 1 fair values are valuations based on quoted market prices in active markets for identical assets or liabilities that the Plan has the ability to access; Level 2 fair values are those valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities; and Level 3 fair values are valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Macy's, Inc. common stock is reported at fair value as determined by quoted market prices in active markets defined as Level 1 in accordance with the fair value hierarchy set forth in ASC Topic 820. The money market funds and pooled funds are required to publish its net asset value (“NAV”) on a daily basis and to transact at their NAV. As such, the Plan's investments are deemed to be actively traded and have readily determinable fair values as defined by U.S. GAAP. The money market funds include fixed-income securities with maturities of three months or less. The pooled funds contain a mix of domestic common stocks and bonds, international common stocks and bonds, and cash and cash equivalents. The Plan can redeem these investments daily, and there are currently no redemption restrictions on these investments. The self-directed brokerage mutual funds trade daily with daily liquidity. They include fixed income funds, equity funds, balanced funds, index funds, international funds and specialty funds such as real estate and health funds. The Plan has no unfunded fund commitments at December 31, 2020.
The preceding methods described may produce a fair value calculation 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 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.
The investments of the Plan that are measured at fair value on a recurring basis as of December 31, 2020 and 2019, and their level within the fair value hierarchy, are as follows:
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December 31, 2020
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Fair Value Measurements
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Quoted Prices in Active Markets for Identical Assets
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Significant Observable Inputs
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Significant Unobservable Inputs
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Total
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(Level 1)
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(Level 2)
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(Level 3)
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(in thousands)
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Money market funds
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$
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23,874
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$
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23,874
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$
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-
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$
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-
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Macy's, Inc. common stock
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100,584
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100,584
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-
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-
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Self-directed brokerage funds
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21,637
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21,637
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-
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-
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Pooled funds:
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Domestic equities
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1,186,241
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1,186,241
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-
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-
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International equities
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160,490
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160,490
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-
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-
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Target date funds
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1,727,690
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1,727,690
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-
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-
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$
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3,220,516
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$
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3,220,516
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$
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-
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$
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-
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8
MACY'S, INC.
401(k) RETIREMENT INVESTMENT PLAN
Notes to Financial Statements - Continued
December 31, 2020 and 2019
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December 31, 2019
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Fair Value Measurements
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Quoted Prices in Active Markets for Identical Assets
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Significant Observable Inputs
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Significant Unobservable Inputs
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Total
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(Level 1)
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(Level 2)
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(Level 3)
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(in thousands)
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Money market funds
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$
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20,340
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$
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20,340
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$
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-
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$
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-
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Macy's, Inc. common stock
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152,817
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152,817
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-
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-
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Self-directed brokerage funds
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21,768
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21,768
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-
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-
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Pooled funds:
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Domestic equities
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1,182,302
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1,182,302
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-
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-
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International equities
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175,079
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175,079
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-
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-
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Target date funds
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1,667,855
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1,667,855
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-
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-
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$
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3,220,161
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$
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3,220,161
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$
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-
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$
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-
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For the years ended December 31, 2020 and 2019 there were no significant transfers in or out of levels 1, 2 or 3 investments.
9
MACY'S, INC.
401(k) RETIREMENT INVESTMENT PLAN
Notes to Financial Statements - Continued
December 31, 2020 and 2019
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4.
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Interest in Master Trust
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The Plan's interest in the net assets of the Master Trust was 100% at December 31, 2020 and 2019. The Plan's interest in the net assets of the Master Trust is included in the accompanying Statements of Net Assets Available for Benefits.
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December 31, 2020
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December 31, 2019
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(in thousands)
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Investments at Fair Value
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Money market fund
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$
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23,874
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$
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20,340
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Macy's, Inc. common stock
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100,584
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152,817
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Self-directed brokerage funds
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21,637
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21,768
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Pooled funds:
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Domestic equities
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1,186,241
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1,182,302
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International equities
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160,490
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175,079
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Target date funds
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1,727,690
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1,667,855
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Total investments at fair value
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3,220,516
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3,220,161
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Insurance contracts at contract value
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619,832
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666,807
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Total investments
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3,840,348
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3,886,968
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Interest receivable
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1,890
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96
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Net dividend receivable
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-
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3,409
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Due from brokers for securities sold
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81
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-
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Trustee and management fees payable
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(242
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)
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(248
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)
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Due to brokers for securities purchased
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-
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(149
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)
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Total interest in Macy's, Inc. Defined Contributions Plans Master Trust
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$
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3,842,077
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$
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3,890,076
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During the years ended December 31, 2020 and 2019, realized and unrealized gains (losses) and interest and dividends on investments held by the Master Trust were as follows:
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2020
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2019
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(in thousands)
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Realized gains
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$
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174,285
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$
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105,403
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Unrealized gains
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217,606
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392,958
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Interest and dividends (net of investment expenses)
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19,236
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30,130
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Certain Master Trust investments are shares of the JP Morgan Prime Money Market Fund totaling approximately $23,874,000 and $20,340,000 at December 31, 2020 and 2019, respectively. JP Morgan Chase Bank is the Trustee of the Plan and, therefore, these transactions qualify as party-in-interest transactions.
In addition, the Plan paid the Trustee approximately $290,000 in administrative expenses, principally Trustee fees, in both 2020 and 2019. In addition to expenses incurred by third party service providers, administrative expenses include salaries and benefits for Macy's associates who provide services to the Plan. Macy's allocated approximately $302,000 and $546,000 in administrative expenses to the Plan in 2020 and 2019, respectively.
The Plan holds shares of the common stock of Macy's, Inc., the Plan Administrator. Macy's, Inc. common stock held by the Plan was 3% and 4% of the Plan's total investments at December 31, 2020 and 2019, respectively.
10
MACY'S, INC.
401(k) RETIREMENT INVESTMENT PLAN
Notes to Financial Statements - Continued
December 31, 2020 and 2019
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6.
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Plan Provisions, Amendments and Termination
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On March 27, 2020, the "Coronavirus Aid, Relief, and Economic Security (CARES) Act" was signed into law. The CARES Act, among other things, includes several relief provisions available to tax-qualified retirement plans and their participants. Plan management has evaluated the relief provisions available to plan participants under the CARES Act and has implemented the following provisions:
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•
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Special coronavirus distributions up to $100,000;
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•
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Increase the available loan amount to the lesser of $100,000 or 100% of the participant's vested account balance;
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•
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Permit COVID-19 impacted participants to take out loans while on furlough; and
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•
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Extend the period for loan repayments, if applicable, up to one year.
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The Company expects to formally adopt the provisions above by amendment in 2022.
Although the Company has not expressed any intent to terminate the Plan, it may do so at any time. In the event the Plan is terminated, the Company would have no further obligation to make contributions, and all participants would become fully vested such that all sums credited to individual accounts (after expenses) would be distributed to participants.
The Plan obtained its latest favorable determination letter on March 24, 2015, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. 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 Internal Revenue Code. Therefore, no provision for income taxes has been included in the Plan's financial statements.
U.S. GAAP requires management to evaluate tax positions taken by the Plan. The financial statement impact of the tax position is when the Plan has taken an uncertain position that more likely than not would be sustained upon examination by the Internal Revenue Service. The Plan Administrator has analyzed the tax positions taken by the Plan and has concluded that as of December 31, 2020, there are no uncertain tax positions taken or expected to be taken. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan Administrator believes the Plan is no longer subject to income tax examinations for years prior to 2017.
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8.
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Administrative Expenses
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The Plan pays reasonable and necessary expenses incurred for the ongoing administration of the Plan. Administrative expenses include third party service providers and salaries and benefits for Macy's associates who provide services to the Plan.
The Plan is involved in various proceedings that are incidental to the operations of the Plan. As of the date of this report, the Plan Administrator does not expect that any of such proceedings will have a material adverse effect on the Plan's financial statements.
11
MACY'S INC.
401(k) RETIREMENT INVESTMENT PLAN
SCHEDULE H, LINE 4i - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
December 31, 2020
Name of Plan Sponsor: Macy's, Inc.
Employer Identification Number: 13-3324058
Three-Digit Plan Number: 013
(a)
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(b)
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(c)
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(d)
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(e)
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Identity of Issue, Borrower, Lessor, or Similar Party
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Description of Investment Including Maturity Date, Rate of Interest, Collateral,
Par or Maturity Value
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Cost **
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Current Value
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*
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Participant loans
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Participants loans, varying maturities with
interest rates ranging from 4.25% to 10.50%
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$ -
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$ 63,196,000
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*Represents a party-in-interest to the Plan.
** Historical cost is disclosed only for nonparticipant-directed investments.
See accompanying report of independent registered public accounting firm.
12
MACY'S INC.
401(k) RETIREMENT INVESTMENT PLAN