Washington, D.C. 20549
☑ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
ECOLOGY AND ENVIRONMENT INC. 401(K) PLAN
Report of Independent Registered Public Accounting Firm
The 401(k) Plan Committee
Ecology and Environment Inc. 401(k) Plan
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of Ecology and Environment Inc. 401(k) Plan (the Plan) as of December 31, 2018 and 2017, the related statement of
changes in net assets available for benefits for the year ended December 31, 2018, and the related notes to the financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31, 2018 and 2017, and the changes in net assets available for benefits for the year ended December 31, 2018, in conformity with accounting principles generally accepted in
the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan in accordance with U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Report on Supplemental Information
The supplemental information in the accompanying schedule, Schedule H, Line 4i – Schedule of Assets Held at End of Year as of December 31, 2018, has been subjected to audit procedures performed in
conjunction with the audit of the Plan’s financial statements. The supplemental information is presented for the purpose of additional analysis and is not a required part of the financial statements but includes supplemental information required by
the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental information is the responsibility of the Plan’s management. Our audit procedures included
determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the
supplemental information. In forming our opinion on the supplemental information in the accompanying schedule, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Department of
Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information in the accompanying schedule is fairly stated in all material respects in relation to
the financial statements as a whole.
/s/ Freed Maxick CPAs, P.C.
We have served as the Plan’s auditor since 2015.
Buffalo, NY
June 27, 2019
Ecology and Environment Inc.
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Financial Statements and Supplemental Schedule
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Statements of
Net Assets Available for Benefits
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Balance at December 31,
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2018
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2017
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Investments, at fair value (Note 5)
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Notes receivable from participants
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Net assets available for benefits
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The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
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1.
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Description of the Plan
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The following description of the Ecology & Environment Inc. 401(k) Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan’s Adoption
Agreement (as amended, the “Plan Document”) for a more comprehensive description of the Plan’s provisions.
General
The Plan was established January 1, 1994 as a defined-contribution plan to cover all eligible employees of Ecology and Environment Inc. (the “Company”). All employees age twenty-one or older are
eligible to participate in the Plan during the month following their date of hire. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”). The Ecology and Environment 401(k) Plan Committee (the
“401(k) Plan Committee”) is responsible for oversight of the Plan, determining the appropriateness of the Plan’s investment offerings, monitoring investment performance and reporting to the Company’s Board of Directors.
Plan Administration
The Company is the Administrator of the Plan. Great-West Trust Company, LLC (“Great-West”) is the Trustee of the Plan and serves as the custodian of Plan assets. Empower Retirement is the
Record-keeper of the Plan.
Certain expenses of maintaining the Plan are paid directly by the Company and are excluded from these financial statements. The remaining expenses are paid for by the Plan’s
participants.
Voluntary Correction Program
During calendar year 2018, the Company discovered an operational error related to certain employees of the Company who elected deferrals from their compensation. Although the
employees completed appropriate selections at the Plan’s website these amounts were not correctly deducted from their paychecks.
In October 2018, the Company filed a Voluntary Correction Plan under the Voluntary Correction Program with the Internal Revenue Service (the “IRS”) to report this operational
error and declare the actions that were taken to resolve these errors. As of the June 27, 2019, the Company has not received a response from the IRS.
Contributions
All contributions to the Plan are cash contributions, and all investments of participant contributions to the Plan are participant directed. Participants may elect to make
voluntary contributions subject to the limitations of the Internal Revenue Code (the “IRC”). Upon enrollment in the Plan, a participant may direct, in at least 10 percent increments in each option selected, his or her contributions in any
combination of the various investment options and a self-directed brokerage access account. The Plan allows Roth 401(k) contributions from participants. Participants who were 50 years of age or older during the Plan year are allowed to contribute
catch up contributions.
Participant Accounts
Each participant’s account is credited with the participant’s contributions and the Plan’s earnings or losses, as applicable, and charged with an allocation of administrative
expenses paid by the Plan. Allocations of administrative expenses are based on participant account balances, as defined in the Plan Document. The benefit to which a participant is entitled is the participant’s vested account balance.
Ecology and Environment Inc.
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Financial Statements and Supplemental Schedule
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Vesting
Participants are immediately vested in their contributions plus actual earnings thereon. There is no partial vesting.
Payment of Benefits
Participants may withdraw all or a portion of their vested account balance at any time upon hardship or after the attainment of age 59½. Participants must
begin to receive benefits no later than the April 1
st
following the calendar year in which the participant attains 70½ or terminates employment, whichever is later.
Upon termination, if a participant’s vested account balance is $1,000 or less, the participant will automatically receive a lump sum distribution as soon as feasible.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right to discontinue and terminate the Plan at any time, subject to the provisions of
ERISA.
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Summary of Accounting Policies
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Basis of Accounting
The accompanying financial statements of the Plan were prepared utilizing the accrual method of accounting, in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”).
Investments and Related Transactions
Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transfer between market
participants at the measurement date. The Plan’s assets include an investment in the common stock of the Company through a unitized stock fund, which includes a money market fund for liquidity purposes, and through the brokerage access account. The
401(k) Plan Committee determines the Plan’s valuation policies utilizing information provided by investment advisers and the Trustee. Refer to Note 5 for additional disclosures regarding fair value measurements.
The Plan’s net depreciation in fair value of investments includes both realized gains and losses and unrealized appreciation (depreciation) on investments bought and sold as
well as held during the year. Interest and dividend income is recognized as earned on the accrual basis. Dividends are recorded on the ex-dividend date. Investment transactions are accounted for on a trade date basis.
Notes Receivable from Participants
Participants may borrow from their account a minimum of $1,000 with a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Note terms range from one
to five years or a reasonable period of time determined when the note is made for the purchase of a primary residence. The notes are collateralized by the balance in the participant’s account. The interest rate is the Prime Rate published by the
Wall Street Journal on the first business day of the month during which the loan is originated plus 1%. The interest rate is fixed over the life of the loan. Principal and interest are paid ratably through bi-weekly payroll deductions.
Ecology and Environment Inc.
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Financial Statements and Supplemental Schedule
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Notes receivable from participants are measured at their unpaid principal balances plus any accrued but unpaid interest. Interest income is recorded on the accrual basis.
Delinquent notes receivable are reclassified as distributions based upon the terms of the Plan Document. No allowance for credit losses was recorded at December 31, 2018 or 2017.
Payment of Benefits
Benefits are recorded when paid by the Plan.
Use of Estimates
Preparation of the Plan’s financial statements in conformity with U.S. GAAP requires the Company, as the Administrator, to make estimates and assumptions that affect the
reported amounts of net assets and disclosures of contingent net assets at the date of the financial statements and the reported amounts of changes in net assets during the reporting period. Actual results could differ from those estimates.
The IRS has determined, and has informed Great-West by a letter dated May 18, 2011, that the prototype non-standardized profit sharing plan adopted by the Plan is designed in
accordance with the applicable sections of the IRC. Although the Plan has been amended since receiving the determination letter, the Company and the Plan’s tax counsel believe that the Plan was designed and was operated in compliance with applicable
requirements of the IRC, and therefore believes that the plan is tax exempt.
The Plan is subject to routine examinations by taxing jurisdictions. U.S. GAAP requires the Company’s management to evaluate tax positions taken by the Plan and to recognize a
tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by taxing jurisdictions. The Company has analyzed the tax positions taken by the Plan and has concluded that as of December
31, 2018 and 2017, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in these financial statements.
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4.
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Risks and Uncertainties
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The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of
risk associated with certain 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 participants’ account balances and
the amounts reported in the statements of net assets available for benefits.
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5.
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Fair Value Measurements
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The U.S. GAAP framework for measuring fair value provides a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest
priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows.
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Level 1:
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Inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Plan can access at the measurement date.
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Level 2:
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Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as:
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Quoted prices for similar assets or liabilities in active markets
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Quoted prices for identical or similar assets or liabilities in inactive markets
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Inputs other than quoted prices that are observable for the asset or liability
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Ecology and Environment Inc.
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Financial Statements and Supplemental Schedule
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Inputs that are derived principally from or corroborated by observable market data by correlation or other means
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If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
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Level 3:
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Inputs that are unobservable inputs for the asset or liability.
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The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value. There were no changes in the methodologies used at December 31, 2018 and 2017. There were no transfers between level 1
and level 2 assets for the years ended December 31, 2018 and 2017.
Self-directed brokerage account:
Primarily consists of mutual funds, exchange traded funds and common stocks that are valued on the basis
of readily determinable market prices of the associated investment.
Mutual funds:
Valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-ended mutual funds that
are registered with U.S. Securities and Exchange Commission. These funds are required to publish their daily net asset value (“NAV”) and to transact at that price. The mutual funds held by the Plan are deemed to be actively traded.
Unitized stock fund:
Valued at the closing price reported on the active market on which the individual securities are traded. A small
portion of the fund is invested in short-term money market instruments.
Common collective trust funds:
In accordance with U.S. GAAP, the Plan’s investments in common collective trust funds, which are measured
at NAV per share (or its equivalent) as a practical expedient, are excluded from the fair value hierarchy. The fair value of the Plan’s interest in the collective trust funds is based on the NAV reported by the fund managers as of the financial
statement dates and recent transaction prices. There are no participant redemption restrictions for these investments; the redemption notice period is applicable only to the Plan. The following fully benefit-responsive investment funds are included
in the collective trust funds as of December 31, 2018 and 2017:
Stable value fund:
The stable value fund is comprised primarily of fully benefit-responsive investment contracts that are valued at the
NAV of units of the bank collective trust. The NAV is used as a practical expedient to estimate fair value. This practical expedient would not be used if it is determined to be probable that the fund will sell the investment for an amount different
from the reported NAV. Participant transactions (purchases and sales) may occur daily. If the Plan initiates a full redemption of the collective trust, the issuer reserves the right to require 12 months’ notification in order to ensure that
securities liquidations will be carried out in an orderly business manner.
S&P 500 index fund:
The S&P 500 index fund is a collective investment trust valued at the NAV of units of the trust. The NAV is
used as a practical expedient to estimate fair value. The fund invests primarily in common stock securities.
The fair value calculations produced by the preceding methods 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.
Ecology and Environment Inc.
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Financial Statements and Supplemental Schedule
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Fair values of the Plan’s investments, and a reconciliation of investments included within the fair value hierarchy to total investments, at fair value presented in the statement
of net assets available for benefits, are presented in the following table.
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Assets at Fair Value at December 31, 2018
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Level 1
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Level 2
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Level 3
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Total
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Self-directed brokerage account
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Total assets in fair value hierarchy
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Investments measured at NAV
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Investments, at fair value
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