Notes to Financial Statements
1. Description of Plan
The following description of the Barnes Group Inc. (the "Company") Retirement Savings Plan (the "Plan") provides only general information. Participants should refer to the Plan document for a more complete description on the Plan’s provisions.
General
The Plan is a defined contribution plan. Full-time salaried and non-union hourly United States employees of the Company are eligible to participate in the Plan. Members of collective bargaining units are not eligible to participate. Eligible employees may elect to enroll in the Plan immediately, however all newly eligible employees are automatically enrolled in the Plan sixty days following the date of hire unless they choose to opt-out of the Plan.
Participant Accounts
Each participant’s account is credited with (1) the participant’s contribution and allocations of (2) the Company’s contributions, if any, and (3) Plan earnings, and is charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined. Forfeited balances of terminated participants’ nonvested accounts are used to reduce future Company contributions and offset administrative expenses of the Plan. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.
Investment Options
All investment programs are fully participant-directed. Participants may direct the investment of their contributions, the Company’s discretionary matching contributions, retirement contributions, and profit sharing contributions, if any, into any of the Plan’s available investment options.
Contributions
Subject to certain restrictions which may be applied to highly-compensated employees, participants may elect to make contributions to the Plan through payroll deductions of between 1% and 75% (in whole percentages) of their Plan compensation. In accordance with the Internal Revenue Code, participant pre-tax contributions could not exceed $19,000 in 2019 and $18,500 in 2018, with the exception of certain allowable catch-up contributions for participants who will be at least 50 by the end of the year. Such contributions may be made on a pre-tax or after-tax basis. After-tax contributions are not subject to matching Company contributions and the combined pre-tax and after-tax deduction cannot exceed 75% of Plan compensation (the after-tax portion of which cannot exceed 10% of Plan compensation). A participant may also elect to increase or reduce the amount of contributions at any time.
Additions to Net Assets during 2019 and 2018 included participant rollovers of $559,658 and $995,297, respectively. All profit sharing contributions are made by the Company. For all participating divisions, a contribution is made ranging from 3.5% to 7.0% of each eligible employee’s paid compensation which includes base wages, overtime, shift differential and commissions. Profit sharing contributions for the years ended December 30, 2019 and 2018 were $3,797,181 and $3,718,063, respectively.
The Company match is equal in value to 50% of the participants’ pre-tax contribution up to 6% of their Plan compensation and may be invested in any of the Plan’s investment alternatives. The Company matching contributions for the years ended December 30, 2019 and 2018 were $3,219,450 and $3,060,936, respectively.
The Company closed its U.S. salaried defined benefit pension plan to employees hired on or after January 1, 2013 with no impact to the benefits of existing participants. The Retirement Savings Plan was therefore amended and restated effective January 1, 2013 to incorporate a new retirement contribution for certain eligible participating division employees. Each participating division employee hired, rehired or reclassified by the Company from an ineligible to eligible participation category under the Plan on or after January 1, 2013 will be eligible to receive a Company contribution equal to 4% of their Plan compensation for each Plan year.
All retirement contributions are made by the Company. For all participating employees, the contribution is equal to 4% of each eligible employee’s compensation, which includes base wages, overtime, shift differential and commissions. Retirement contributions for the years ended December 30, 2019 and 2018 were $1,115,872 and $1,196,817, respectively.
Benefits
Upon a participant’s separation from service due to termination, death, disability or retirement, benefits may be distributed to him or her or his or her beneficiary (in the event of death) in a single lump-sum amount equal to the vested value of his or her account. Active participants may also withdraw funds from their accounts due to age or under certain hardship conditions.
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. No allowances for credit losses have been recorded as of December 30, 2019 and 2018. 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.
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance, not including the profit sharing portion or the incremental discretionary retirement Company contribution of 4%. Loan transactions are treated as a transfer to (from) the investment fund from (to) the participant loans fund. Personal loan terms can be up to five years. The loans are collateralized by the balance in the participant’s account and bear a reasonable rate of interest as established by the Benefits Committee in a nondiscriminatory manner.
Vesting
A participant is 100% vested in the Company match following two completed years of service with the Company. Participants are always 100% vested with respect to their own contributions plus actual earnings thereon. In addition, Company matching contributions become 100% vested upon death, permanent disability or when the participant reaches age 55. Profit sharing and 4% retirement contributions become 100% vested upon death, permanent disability or when the participant reaches age 65.
Profit sharing vesting is as follows:
(1) For employees of participating divisions other than Bowman U.S.:
|
|
|
|
|
|
|
Period of Service
|
Vested and
Nonforfeitable
Percentage
|
|
Less than 1 year
|
0
|
%
|
|
1 but less than 2 years
|
20
|
%
|
|
2 but less than 3 years
|
40
|
%
|
|
3 but less than 4 years
|
60
|
%
|
|
4 but less than 5 years
|
80
|
%
|
|
5 or more years
|
100
|
%
|
(2) For employees of Bowman U.S.:
|
|
|
|
|
|
|
Period of Service
|
Vested and
Nonforfeitable
Percentage
|
|
Less than 5 years
|
0
|
%
|
|
5 or more years
|
100
|
%
|
Retirement contribution vesting is as follows:
|
|
|
|
|
|
|
Period of Service
|
Vested and
Nonforfeitable
Percentage
|
|
Less than 1 year
|
0
|
%
|
|
1 but less than 2 years
|
20
|
%
|
|
2 but less than 3 years
|
40
|
%
|
|
3 but less than 4 years
|
60
|
%
|
|
4 but less than 5 years
|
80
|
%
|
|
5 or more years
|
100
|
%
|
Trustee
Fidelity Management Trust Company ("Fidelity") is the trustee for all Plan assets. The Benefits Committee, appointed by the Board of Directors of the Company, is responsible for the general administration of the Plan.
Plan Termination
The Company presently intends to continue the Plan indefinitely; however, the Company’s Board of Directors may terminate the Plan at any time subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). Upon termination of the Plan, all participants become fully vested in all Company contributions and earnings credited to their accounts as of the date of such termination.
2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Risks and Uncertainties
The Plan provides for various investment options in mutual funds, a Managed Income Portfolio Fund and Barnes Group Inc. common stock. These investments 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.
Investment Valuation and Income Recognition
The Plan’s mutual funds are stated at fair value, which is based on quoted market prices in an active market. Purchases and sales of securities are recorded on the trade-date. Interest is recorded on the accrual basis and dividend income on the ex-dividend date.
The Plan’s investment in the Managed Income Portfolio Fund is accounted for in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 962, Plan Accounting - Defined Contribution Pension Plans ("ASC 962"). The Managed Income Portfolio Fund has been reported using its net asset value ("NAV") as a practical expedient which represents the fair value of the fund.
The fair value of investments in the Company’s common stock is based upon quoted market prices.
The Plan presents, in the statements of changes in net assets available for benefits, the net appreciation (depreciation) in the fair value of investments (net of investment expenses), which consists of the realized and unrealized gains or losses on those investments.
Fair Value of Investments
The Plan follows FASB ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC 820 defines fair value, establishes a fair value hierarchy, and expands disclosures about fair value measurements.
The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including the Plan’s own credit risk.
In addition to defining fair value, ASC 820 establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety.
These levels are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3 - Unobservable inputs for the asset or liability.
Payment of Benefits
Benefits are recorded when paid.
Administrative Expenses
The Plan provides that all expenses incurred in administering the Plan may be paid by the Plan or the Company. During 2019 and 2018, administrative expenses paid by the Plan include legal, audit, custodial, record-keeping and other administrative expenses.
The Plan is permitted to require participants to pay certain administrative fees in connection with the operation of the Plan from individual participant accounts. Effective April 1, 2019, the Plan was amended and restated to incorporate an annual fee to offset the cost of Plan record-keeping and administration. The annual fees were $72 in 2019 per participant record. The annual record-keeping fees are prorated, billed quarterly and applied to any account with a plan balance at the end of each quarter. The Plan also incorporated a revenue-sharing agreement whereby certain investments return a portion of the investment fees to participant accounts. For the year ended December 30, 2019 revenue credits of $208,285 were applied to individual participant accounts and are included within administrative expenses.
Contributions
Employee contributions are recorded in the period in which the employee payroll deductions are made.
3. Fair Value Measurements
The following table summarizes the fair values and levels within the fair value hierarchy in which the fair value measurements fall for assets measured on a recurring basis as of December 30, 2019:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Investments:
|
|
|
|
|
|
|
|
|
Mutual funds
|
$
|
211,644,535
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
211,644,535
|
|
|
Barnes Group Inc. common stock
|
50,658,894
|
|
|
—
|
|
|
—
|
|
|
50,658,894
|
|
|
Total investments in the fair value hierarchy
|
262,303,429
|
|
|
—
|
|
|
—
|
|
|
262,303,429
|
|
|
Managed Income Portfolio Fund*
|
—
|
|
|
—
|
|
|
—
|
|
|
46,197,402
|
|
|
Total investments at fair value
|
$
|
262,303,429
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
308,500,831
|
|
*Investments measured at fair value using the NAV as a practical expedient have not been classified within the fair value hierarchy.
The following table summarizes the fair values and levels within the fair value hierarchy in which the fair value measurements fall for assets measured on a recurring basis as of December 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Investments:
|
|
|
|
|
|
|
|
|
Mutual funds
|
$
|
172,848,260
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
172,848,260
|
|
|
Barnes Group Inc. common stock
|
56,979,405
|
|
|
—
|
|
|
—
|
|
|
56,979,405
|
|
|
Total investments in the fair value hierarchy
|
229,827,665
|
|
|
—
|
|
|
—
|
|
|
229,827,665
|
|
|
Managed Income Portfolio Fund*
|
—
|
|
|
—
|
|
|
—
|
|
|
42,628,989
|
|
|
Total investments at fair value
|
$
|
229,827,665
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
272,456,654
|
|
*Investments measured at fair value using the NAV as a practical expedient have not been classified within the fair value hierarchy.
4. Managed Income Portfolio Fund
The Plan maintains a Managed Income Portfolio Fund ("MIP") with Fidelity. The fund is included in the statements of net assets available for benefits using the NAV practical expedient, which represents the fund’s fair value. The NAV represents contributions made, plus earnings, less participant withdrawals and administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. The average yield and crediting rates for 2019 were 2.71% and 2.24%, respectively. The average yield and crediting rates for 2018 were 2.55% and 2.17%, respectively.
There were no unfunded commitments on the MIP as of December 30, 2019. Participant level transactions take place daily with the liquidation typically being requested one day and processed the next business day. The Plan level liquidations require notice to Fidelity and could result in the MIP investment being placed into an account for investments only for up to one year.
5. Notes Receivable from Participants
Participants may elect to take loans from their accumulated vested account balances in the Plan subject to certain limitations. The loans are withdrawn from the participants’ fund balances based upon the percentages in which they were invested and in a sequence as prescribed by the Plan. Interest is charged on the loans at a rate determined quarterly at prime as published in the Wall Street Journal plus one half of one percent (interest rates on outstanding loans at December 30, 2019 ranged from 3.75% to 8.75%). Interest charges commence sixty days subsequent to the initial loan date.
Loan repayments are made in equal periodic installments for a period not to exceed five years and are invested on the participant’s behalf in the investment funds per the participant’s investment elections. As of December 30, 2019 and 2018, there were 424 and 427 participants with loans outstanding, respectively.
6. Benefit Payments and Forfeitures
During 2019 and 2018, benefit payments amounted to $36,144,540 and $35,754,551, respectively.
If a participant terminates their employment with the Company, the portion of Company contributions not vested is forfeited. Such forfeitures amounted to $552,426 and $402,348 in 2019 and 2018, respectively. The amount of forfeitures used to reduce Company contributions and Plan expenses were $405,375 and $368,060 in 2019 and 2018, respectively. Unallocated forfeitures at December 30, 2019 and 2018 were $465,936 and $312,813, respectively. Profit sharing forfeitures are reallocated as Company contributions.
7. Federal Income Tax Status
The U.S. Treasury Department has determined, most recently as of October 31, 2016, that the Plan as originally adopted and amended through January 8, 2016 is a qualified plan under the applicable provisions of the Internal Revenue Code ( the "Code") and, as such, is exempt from Federal income taxes. The Plan has been amended since receiving the determination letter from the U.S. Treasury Department. However, the Plan administrator, which consults regularly with outside legal counsel regarding Plan matters, believes that the Plan is designed and is currently 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.
Employees are not taxed currently on Company contributions to the Plan, contributions made under the salary deferral provisions of the Plan, or on income earned by the Plan. However, employees are currently taxed on any after-tax contributions. Internal Revenue Service and applicable state regulations in effect in the year participant distributions are made determine the tax status of such distributions. 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 it is no longer subject to income tax examinations for years prior to 2016.
8. Exempt Party-In-Interest / Related Party
In 2019, the Plan purchased on the open market 217,800 shares of Barnes Group Inc. common stock at a cost of $11,504,479. The Plan also sold on the open market 481,130 shares for proceeds of $26,545,304. In addition, there were no participant distributions of stock that resulted in the transfer out of shares from the Plan. The Plan received no shares as matching contributions from the Company.
In 2018, the Plan purchased on the open market 477,500 shares of Barnes Group Inc. common stock at a cost of $29,237,989. The Plan also sold on the open market 526,168 shares for proceeds of $32,755,315. In addition, there were no participant distributions of stock that resulted in the transfer out of shares from the Plan. The Plan received no shares as matching contributions from the Company.
The Plan owned 812,362 shares of Barnes Group Inc. common stock or approximately 2% of the outstanding common shares of the Company at December 30, 2019. The Plan owned 1,075,692 shares of Barnes Group Inc. common stock or approximately 2% of the outstanding common shares of the Company at December 30, 2018.
Certain Plan investments are shares of registered investment companies managed by the Trustee. Therefore, these transactions qualify as exempt party-in-interest transactions. Fees paid by the Plan for certain record keeping fees, loan origination fees and redemption charges amounted to $178,390 and $52,748 for the years ended December 30, 2019 and 2018, respectively.
9. Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements to Form 5500 as of December 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Net assets available for benefits per the financial statements
|
$
|
320,709,961
|
|
|
$
|
284,602,067
|
|
|
Deemed defaulted loans
|
(91,586
|
)
|
|
(51,441
|
)
|
|
Adjustment from NAV to fair value for the Managed Income Portfolio Fund
|
625,694
|
|
|
(482,410
|
)
|
|
Net assets available for benefits per Form 5500
|
$
|
321,244,069
|
|
|
$
|
284,068,216
|
|
The following is a reconciliation of the net change in net assets available for benefits per the financial statements to Form 5500 as of and for the years ended December 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Total net change per the financial statements
|
$
|
36,107,894
|
|
|
$
|
(38,942,344
|
)
|
|
Change in deemed defaulted loans
|
(40,145
|
)
|
|
(11,210
|
)
|
|
Change in adjustment from NAV to fair value for the Managed Income Portfolio Fund
|
1,108,104
|
|
|
(390,428
|
)
|
|
Total net change per Form 5500
|
$
|
37,175,853
|
|
|
$
|
(39,343,982
|
)
|
10. Subsequent Events
In December 2019, an outbreak of a novel strain of coronavirus (“COVID-19”) began in Wuhan, China, and was subsequently declared a pandemic by the World Health Organization. The outbreak and a continued spread of COVID-19 has resulted in a substantial curtailment of business activities worldwide and has caused weakened economic conditions in the United States and abroad. The impact of COVID-19 continues to evolve and its potential effects on or changes in the Plan's net assets are uncertain at this time.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. The CARES Act contains several provisions that temporarily impact the Plan such as suspending minimum required distributions, increased loan limits and coronavirus-related hardship withdrawal options. The Company has adopted these provisions into the Plan.