Stock Fund. The Plan allows participants to invest in the common stock of the Company through the TopBuild Corp. company stock fund (the “TopBuild Stock Fund”). Participants may not direct more than 25 percent of their contributions into the TopBuild Stock Fund and may not exchange more than 25 percent of their investments into the TopBuild Stock Fund. The TopBuild Stock Fund may also hold cash or other short-term securities, although these are expected to be a small percentage of the fund.
Each participant who has an interest in the TopBuild Stock Fund is entitled to exercise voting rights attributable to the shares allocated to his or her TopBuild Stock Fund account and is notified by the Trustee, Fidelity Management Trust Company (“Fidelity”) as defined by the Plan, prior to the time that such rights are to be exercised. If the Trustee does not receive timely instructions, the Trustee itself or by proxy shall vote all such shares in the same ratio as the shares with respect to which instructions were received from participants.
Notes Receivable from Participants. Generally, participants may borrow from their account a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50 percent of their vested account balance at the time of the loan. Loan terms generally range from 1-5 years, or up to 15 years in the case of a principal residence loan. Loans are collateralized by the balance in the participant's account and generally bear interest at a rate equal to the prime rate on the last business day of the month prior to the date of the loan application. Principal and interest are paid ratably through payroll deductions.
Payment of Benefits. Generally, after separation from service due to termination, death, disability, or retirement, a participant may elect to receive an amount equal to the value of the participant’s vested interest in his or her account either in a single lump-sum amount or in annual installments over a period not to exceed five years. In-service and hardship withdrawals made in accordance with the Plan document are distributed in a single payment.
COVID-19 Relief Options for Participants. In March 2020, the World Health Organization declared the outbreak of the coronavirus disease (“COVID-19”) as a pandemic. This pandemic has affected global economic activity and contributed to instability in financial markets. The extent to which the COVID-19 pandemic will impact the Plan’s net assets and changes in net assets will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or address its impact, and how quickly and to what extent normal economic and operating activities can resume across the globe.
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. One of those provisions included the permission of a temporary suspension of loan payments to qualified individuals through December 31, 2020, which the Plan Administration operationally elected. Additionally, TopBuild implemented a COVID-19 leave plan in 2020 to pay its employees that were directly affected due to mandated shutdowns or quarantines, business volume slow down or other circumstances. The Plan was amended as of January 1, 2020 to exclude this special pay from eligible compensation, for purposes of determining amounts that may be contributed to the Plan.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Plan’s financial statements and accompanying footnotes and schedules are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Basis of Accounting. The accompanying financial statements are prepared on the accrual basis of accounting.
Use of Estimates and Assumptions in the Preparation of Financial Statements. The preparation of our Plan financial statements in conformity with U.S. GAAP requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of any contingent assets and liabilities, at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period. Actual results may differ from these estimates and assumptions.
Risks and Uncertainties. The Plan provides for various investment options in mutual funds and other investment securities. Investment securities are exposed to various risks, including interest rate, market, and credit risks. Due to the level of risk