Notes to Financial Statements
December 31, 2020
1. Description of the Plan
The TD 401(k) Retirement Plan (the "Plan")
is a defined contribution plan sponsored by TD Bank US Holding Company (the “Company”), an indirect wholly-owned subsidiary
of The Toronto-Dominion Bank. The following provides only general information about the Plan. Participants should refer to the Plan document
for a more complete description of the Plan’s provisions. Capitalized terms used herein but not defined shall have the meaning attributed
to them in the Plan document.
General
The Plan is a defined contribution plan subject
to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). The Plan was amended and restated effective
January 1, 2020 and further amended effective October 1, 2020 to allow participants to make Roth Contributions to the Plan.
In March 2020, the US Government passed the Coronavirus
Aid, Relief and Economic Security (CARES) Act. Pursuant to relief available under the CARES Act, the Plan allowed for suspension of loan
repayments, , increased the amount available to participants for new loans to the lesser of $100,000 or the Participant’s vested
account balance, and added a new withdrawal option of up to $100,000 without the 10% early withdrawal penalty and with the ability to
be repaid over three years. These temporary provisions had various expiration dates throughout 2020, with all provisions expired by December
30, 2020.
Plan Administration
The Plan is administered by The Toronto-Dominion
Bank (the “Plan Administrator”). The Plan Administrator has assigned the record-keeping, trustee and custodial responsibilities
of the Plan to T. Rowe Price, who also serves as Trustee of the Plan.
Contributions
Participants may contribute to the Plan up to
50% of their eligible compensation on a pre-tax basis, a Roth after-tax basis, or a combination of both. Eligible compensation considered
for this purpose meets the standards defined by the Internal Revenue Code (the “Code”) for safe harbor plans and includes,
but is not limited to, regular earnings, overtime pay, commissions, bonuses, and incentives. Participants may also roll over their account
balances from a prior employer's eligible employer plan (e.g., a 401(k) plan, profit sharing plan, or 403(b) tax sheltered annuity)
or from a traditional individual retirement account or annuity.
TD 401(k) Retirement Plan
Notes to Financial Statements (continued)
December 31, 2020
1. Description of the Plan (continued)
Participants are eligible for employer matching
contributions on the first of the month following (or coincident with) completion of twelve months of service with the Company or an affiliate.
The employer match was designed to meet the standards for safe harbor treatment as defined by the Code. The Plan matches 100% of participant
contributions up to the first 3% of eligible compensation and 50% on the next 3% of eligible compensation. Matching contributions for
2020 and 2019 totaled $75.6 million and $69.2 million, respectively. Participants’ contributions are subject to Code limitation,
which was $19,500 and $19,000 for 2020 and 2019, respectively. Catch-up contributions (within the meaning of Section 414(v) of the Code)
can also be made by participants who reach age 50 during the Plan year. Participants are only permitted to make catch-up contributions
after they have already contributed the maximum amount for the year. The catch-up contribution limit was $6,500 in 2020 and $6,000 in
2019.
The Plan also includes an employer core contribution
for all eligible employees. To be eligible for a core contribution, an employee must first complete a year of service with the Company
or an affiliate and be at least 21 years of age. Once this requirement is met, a participant is eligible for an allocation for the Plan
year if they are employed on the first and last day of the year and work at least 1,000 hours during the year. The core contribution is
determined based on the sum of a participant’s age and years of service (both calculated in whole years on the first day of each
year) in accordance with the following schedule:
|
Years of Age +Years of Service
|
|
Core Contribution
(Percentage of
Eligible
Compensation)
|
|
|
Less than 35
|
|
|
2.0
|
%
|
|
35 – 44
|
|
|
2.5
|
%
|
|
45 – 54
|
|
|
3.0
|
%
|
|
55 – 64
|
|
|
4.0
|
%
|
|
65 – 69
|
|
|
5.0
|
%
|
|
70 or more
|
|
|
6.0
|
%
|
The core contributions for 2020 and 2019 were
$64.3 million and $57.2 million, respectively. The core contributions were paid to the Plan in February 2021 and 2020, respectively.
TD 401(k) Retirement Plan
Notes to Financial Statements (continued)
December 31, 2020
1. Description of the Plan (continued)
Participant
Accounts
Each participant’s account reflects the
participant’s contributions, rollover, and Company contributions as well as earnings or losses on those contributions. Participant
accounts are reduced by withdrawals and any applicable direct expenses.
Vesting
Participant contributions, any safe harbor employer
matching contributions, and any earnings thereon are immediately vested.
Participants whose employment is terminated for
any reason other than death or becoming disabled prior to reaching Normal Retirement Age, as defined by the Plan, shall have a non-forfeitable
interest in the value of their core contributions, and any earnings thereon, in accordance with the following schedule:
|
Years of Vesting Service (as defined by the Plan)
|
|
Vested Percentage
|
|
|
Less than three years
|
|
|
0
|
%
|
|
Three or more years
|
|
|
100
|
%
|
Notwithstanding the foregoing, any prior Plan
balances from merged plans shall continue to vest in accordance with their respective vesting schedules.
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. Related fees are recorded as administrative expenses and are expensed when they are incurred.
No allowance for credit losses has been recorded as of December 31, 2020 or 2019. If a participant ceases to make loan repayments and
the Plan Administrator deems the participant loan to be a distribution, the participant loan balance is reduced, and a benefit payment
is recorded. No losses on participant loans have been recorded as of December 31, 2020 or 2019. In response to the CARES Act, the Plan
temporarily allowed for the suspension of loan repayments. This temporary provision expired December 31, 2020.
TD 401(k) Retirement Plan
Notes to Financial Statements (continued)
December 31, 2020
1. Description of the Plan (continued)
Participants may borrow from their accounts, excluding
balances related to core contributions. The minimum amount that a participant may borrow is $1,000 and the maximum is equal to the lesser
of $50,000 or 50% of the account balance (these maximums were increased to $100,000 or 100% of the vested account balance for the period
from March 27, 2020 to September 22, 2020 for loans to qualified individuals pursuant to the CARES Act). Loans must be paid over a period
of up to five years (up to 15 years for the purchase of a principal residence). The loans are secured by the balance in the participant’s
account and bear interest at a fixed rate established by the Plan Administrator based on the Prime Rate as reported in The Wall Street
Journal on the date that the loan application is processed. Interest rates range from 3.25% to 8.75% on loans outstanding at December
31, 2020 and 2019. Principal and interest are paid through payroll deductions.
Benefits
Participants may elect, at any time, to withdraw
all or a portion of their account related to a rollover contribution, including earnings on those contributions. After attaining age 59½,
participants may withdraw all or part of their total account balance. In the event of a qualifying hardship, participants may withdraw
their participant contributions, rollover contributions, certain balances from prior Plans (as further defined in the Plan document),
and related earnings.
Upon termination of employment or retirement,
participants can elect to take a lump sum distribution or leave their account balance in the Plan. If the participant’s vested account
balance is less than $1,000, the participant is paid a single lump sum equal to the value of his or her vested account. In the event of
death, the balance in the participant’s account is paid to the designated beneficiary as provided by the Plan.
Additionally, qualifying participants were allowed
to withdraw up to $100,000 through December 31, 2020, with no early withdrawal penalty, in accordance with the CARES Act. The withdrawal
can be repaid by the participant within a 3-year period and is recorded as a rollover contribution.
Participant
Investment Options
Each participant has the option of allocating
employee and employer contributions into various investment options offered by the Plan. Investment options include mutual funds, common
collective trust funds, and common shares of The Toronto-Dominion Bank. A participant’s investment direction with respect to future
contributions and the reinvestment of all or a portion of their account is subject to a 20 percent limitation on investments in common
shares of The Toronto-Dominion Bank.
TD 401(k) Retirement Plan
Notes to Financial Statements (continued)
December 31, 2020
1. Description of the Plan (continued)
Forfeitures
Amounts in which the participant does not have
a vested interest shall be forfeited by the participant after five consecutive one-year breaks in service, as defined by the Plan document.
At December 31, 2020 and December 31, 2019, forfeited non-vested accounts from terminated employees totaled $688,875 and $1,738,609, respectively,
and were maintained in a separate account and are available to offset future employer contributions. For the years ended December 31,
2020 and December 31, 2019, employer contributions were reduced by $809,151 and $762,609, respectively, from forfeited accounts.
Voting Rights
Each participant is entitled to exercise voting
rights attributable to The Toronto-Dominion Bank common shares allocated to his or her account and is notified by the transfer agent prior
to the time that such rights are to be exercised. The Trustee is permitted to vote in the best interest of Plan participants’ shares
for which instructions have not been given by a participant.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements were prepared
in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and are presented
on the accrual basis of accounting.
Management Estimates
The preparation of financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes
therein, and disclosures of contingent assets and liabilities. Actual results could differ from those estimates.
Investment Valuation and Income
Recognition
Investments held by the Plan are stated at fair
value. Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value measurement
reflects all of the assumptions that market participants would use in pricing the asset or liability, including assumptions about the
risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of non-performance.
See Note 6 for further discussion of fair value measurements.
TD 401(k) Retirement Plan
Notes to Financial Statements (continued)
December 31, 2020
2. Summary of Significant Accounting Policies
(continued)
Purchases and sales of securities are recorded
on a trade-date basis. Interest income is recorded on an accrual basis. Dividends are recorded as of the ex-dividend date. Net appreciation
(depreciation) includes the Plan’s gains (losses) on investments bought and sold as well as held during the year.
Payment of Benefits
Benefit payments to participants are
recorded when paid.
Administrative Expense
In accordance with the Plan provisions, all eligible
administrative expenses may be paid by the Plan unless paid by the Company. Administrative expenses amounting to $1,595,454 and $1,057,740
were paid by the Plan in 2020 and 2019, respectively, which were debited directly from participant accounts. Prior to March 31, 2019,
administrative expenses amounting to $336,133 were paid by Plan participants indirectly through the Plan's investment returns.
3. Accounting Changes
The following recent accounting pronouncement
was adopted for the Plan in the current year.
|
Standard
|
|
Description
|
|
Annual Reporting
Period Ended
|
|
Effects on
Financial
Statements
|
|
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement"
|
|
The guidance eliminates, adds and modifies certain fair value disclosures for all entities.
|
|
December 31, 2020
|
|
Adoption of the guidance did not have an impact on the Plan's fair value disclosures.
|
TD 401(k) Retirement Plan
Notes to Financial Statements (continued)
December 31, 2020
4. Federal Income Tax Status
The Plan received a determination letter from
the Internal Revenue Service (the "IRS") dated October 27, 2014 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 and
restated, effective January 1, 2020. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualified
status. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore,
believes that the Plan, as amended and restated, is qualified and the related trust is tax-exempt.
US GAAP requires Plan Management to evaluate tax
positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would
not be sustained upon examination by the IRS. Plan management has analyzed the tax positions taken by the Plan, and has concluded that
as of December 31, 2020, 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.
5. Administration of Plan Assets
The Plan’s assets, which include The Toronto-Dominion
Bank common shares, are held by the Trustee of the Plan. T. Rowe Price serves as the service provider and Trustee for the Plan. T. Rowe
Price serves as a directed Trustee who will act based on direction of the Plan Administrator or participants, as appropriate. Company
contributions are held by the Trustee, who invests contributions received, reinvests interest and dividend income, and processes distributions
to participants. Certain administrative functions are performed by officers or employees of the Company or its subsidiaries. No such officer
or employee receives compensation from the Plan.
6. Fair Value Measurements
US GAAP establishes a three-level fair value hierarchy
based on the nature of data inputs for fair value disclosure. This hierarchy requires maximum use of observable inputs, and minimum use
of unobservable inputs when measuring fair value. These levels are as follows:
|
|
Level 1
|
Quoted market prices in active markets that the Plan has access
to for identical assets and liabilities. Level 1 instruments include equity securities and mutual funds that are traded in an active
exchange market.
|
TD 401(k) Retirement Plan
Notes to Financial Statements (continued)
December 31, 2020
6. Fair Value Measurements (continued)
|
|
Level 2
|
Observable inputs other than Level 1 prices, such as quoted
market prices for similar (but not identical) assets or liabilities in active markets, quoted market prices for identical assets or liabilities
in markets that are not active and other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
|
|
|
Level 3
|
Fair value is based on unobservable inputs that are supported
by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The following is a description of the valuation
methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2020 as compared
to those used at December 31, 2019.
Common stock: Valued at the
closing price reported on the active market on which the individual securities are traded.
Mutual funds: Valued at the
net asset value ("NAV") of shares held by the Plan at year end as reported in the active market.
The Common Collective Trusts are reported by the
issuer at fair value based on the value of the underlying investments divided by the number of units outstanding, less liabilities, to
arrive at NAV per unit. NAV is used as a fair value practical expedient. There are no restrictions on redemptions from the collective
trusts. In 2019, certain mutual funds were replaced by similar common collective trusts.
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.
Noninterest-bearing cash and receivables reported
in the Statements of Net Assets Available for Benefits are presented at carrying amounts which approximate fair values.
TD 401(k) Retirement Plan
Notes to Financial Statements (continued)
December 31, 2020
6. Fair Value Measurements (continued)
The following tables set forth by level, within
the fair value hierarchy, the Plan’s Investment assets at fair value as of December 31, 2020 and 2019. There were no changes between
levels for the years ended December 31, 2020 and 2019:
|
|
|
Assets at Fair Value as of December 31, 2020
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Mutual Funds
|
|
$
|
986,952,849
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
986,952,849
|
|
|
Common Stock
|
|
|
169,158,842
|
|
|
|
-
|
|
|
|
-
|
|
|
|
169,158,842
|
|
|
Total assets in the fair value hierarchy
|
|
$
|
1,156,111,691
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,156,111,691
|
|
|
Investments measured at net asset value – Common Collective Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,811,562,228
|
|
|
Investments at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,967,673,919
|
|
|
|
|
Assets at Fair Value as of December 31, 2019
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Mutual Funds
|
|
$
|
903,311,027
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
903,311,027
|
|
|
Common Stock
|
|
|
169,398,145
|
|
|
|
-
|
|
|
|
-
|
|
|
|
169,398,145
|
|
|
Total assets in the fair value hierarchy
|
|
$
|
1,072,709,172
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,072,709,172
|
|
|
Investments measured at net asset value – Common Collective Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,354,795,197
|
|
|
Investments at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,427,504,369
|
|
7. Related-Party Transactions
The Plan owned 2,998,207 and 3,017,960 shares
of common stock of The Toronto-Dominion Bank, valued at $169,158,842 and $169,398,145 at December 31, 2020 and 2019, respectively, from
which the Plan received dividends of $6,990,092 and $6,689,823 for years ended December 31, 2020 and 2019, respectively. Certain Plan
investments were managed and held in trust by T. Rowe Price during 2020 and 2019. Consequently, T. Rowe Price is a party-in-interest.
8. Risks and Uncertainties
The Plan and its participants invest in various
investment securities. Investment securities, in general, are exposed to various risks, such as interest rate, liquidity, credit, and
overall market volatility risk. Due to the level of risk associated with certain investment securities, it is probable that changes in
the value of investment securities will occur in the near term and such changes could materially affect participants’ account balances
and the amounts reported in the statements of net assets available for benefits.
TD 401(k) Retirement Plan
Notes to Financial Statements (continued)
December 31, 2020
8. Risks and Uncertainties (continued)
In March 2020, the World Health Organization categorized
Coronavirus Disease 2019 ("COVID-19") as a pandemic, and the President of the United States declared the COVID-19 outbreak a
national emergency. As a result of COVID-19, there has been heightened market risk and volatility associated with the pandemic, and this
could materially affect participants' account balances and the amounts reported in the Statements of Net Assets Available for Benefits
and the Statements of Changes in Net Assets Available for Benefits. Due to the uncertainty of the markets during this time, Plan management
is unable to estimate the total impact the pandemic will have.
9. 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, as amended. Upon discontinuance or termination, forfeitures shall be allocated to the accounts of participants on such date.
In the event the Plan terminates, participants will become 100% vested in their accounts.
Supplemental Schedule