Notes to Financial Statements
NOTE 1. DESCRIPTION OF THE PLAN
The following description of the TechnipFMC Retirement Savings Plan (the “Plan”) provides general information. Refer to the Plan agreement, as amended, for a complete description of the Plan’s provisions.
The Plan is a qualified salary-reduction plan under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”), and is available to all eligible U.S. employees of TechnipFMC plc (“TechnipFMC” or the “Company”) who meet certain eligibility requirements under the Plan. Such employees are eligible to participate in the Plan immediately upon commencement of their employment with the Company. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Plan is administered by the FMC Technologies, Inc. Employee Benefits Committee (“EBC”), acting on behalf of the Company as the Plan administrator.
The Plan allows participants to contribute a percentage of their compensation to the Plan. Participants may elect to contribute up to 75% of their total eligible compensation on a pre-tax or an after-tax basis. Pre-tax contributions were subject to the limitation of $19,500 and $18,500 for 2019 and 2018, respectively, under the Code. In addition, active employees who attain age 50 or older during the year are eligible to make catch-up contributions to the prescribed limit. The limitation on the catch-up contribution was $6,500 and $6,000 for 2019 and 2018, respectively.
The Company makes matching contributions (“Company Safe Harbor Matching Contributions”) for all active participants, except for certain bargaining unit employees. The Company matches 100% of each nonunion participant’s contribution, up to the first 5% of eligible compensation. The nonelective contribution percentage is determined annually by the Company. The Company made nonelective contributions of 2% for all eligible participants during the years ended December 31, 2019 and 2018.
Participants may also contribute amounts representing distributions from other qualified defined contribution plans (rollover contributions).
At December 31, 2019 and 2018, a total of 10,708 and 10,872 current and former employees participated in the Plan, respectively.
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(c)
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Trust and Recordkeeping
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The Company and Fidelity Management Trust Company (the “Trustee”) established a trust for investment purposes as part of the Plan. The Trustee is also the Plan’s recordkeeper.
Participants have the option of investing their contributions and the Company’s matching and nonelective contributions among one or all of the available investment options offered by the Plan. Generally, participants may transfer some or all of the balances out of any fund into one or any combination of the other funds at any time. A self-directed brokerage account option is also available to allow participants to select investment options not specifically offered by the Plan.
Participants are immediately vested in their elective contributions and Company Safe Harbor Matching Contributions, plus actual earnings thereon. Eligible participants become vested in any balance of their Company nonelective contributions upon three years of service (or age 55 if active, if earlier).
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(f)
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Payment of Benefits and Forfeitures
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Upon termination of service, death, disability or attainment of age 59½, a participant may elect to immediately receive a lump sum distribution equal to the vested interest of his or her account. Participants may, upon termination, elect to defer their lump sum distribution or receive annual
installments. If a participant is not fully vested in the Company’s nonelective contributions to his or her account on the date of termination of employment, the nonvested portion is forfeited. Forfeitures are used to pay certain administrative expenses of the Plan and to reduce future Company contributions to the Plan. During 2019 and 2018, forfeitures of $2.5 million and $0.3 million, respectively, were used to pay certain administrative expenses of the Plan and to reduce Company contributions. The forfeited balances held in the Plan as of December 31, 2019 and 2018, were $0.4 million and $2.1 million, respectively.
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(g)
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Administrative Expenses
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Certain Plan administrative expenses are paid by the Trustee out of the assets of the Plan and constitute a charge upon the respective investment funds or upon the individual participants’ accounts while fees associated with self-directed brokerage accounts are paid by the participants. These investment-related expenses are included in net appreciation (depreciation) in fair value of investments. Certain other Plan expenses may be paid by the Plan from the forfeitures balance. Administrative expenses paid by the Company are excluded from these financial statements.
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(h)
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Withdrawals and Loans
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Subject to income taxation and the Internal Revenue Service (“IRS”) penalties, the Plan allows participants to make in-service and hardship cash withdrawal of some or all of their vested account balances (including the balances of self-directed brokerage accounts). Eligible participants may also receive money from the Plan in the form of loans. The minimum that may be borrowed is $1,000. The maximum that may be borrowed is the lesser of $50,000, minus the highest outstanding loan balance during the one-year period ending on the day before the loan is made, or 50% of the participant’s vested account balance. Loans, which are secured by the participant’s vested account balance, in general must be repaid over a time period not to exceed 60 months with exception if the participant uses the loan to purchase a primary residence. Loans bear interest at a reasonable rate as determined by the EBC. A participant may have no more than two loans outstanding at any one time.
The Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan (“full termination”) subject to the provisions of the Plan and ERISA but has not expressed any intent to do so. In the event of full termination or termination with respect to a group or class of participants (“partial termination”), the unvested portion of Company contributions for participants subject to such full termination or partial termination will become fully vested.
A separate account is maintained for each participant. Each participant’s account is credited with the participant’s contributions, the Company’s contributions and allocations of Plan earnings or losses and certain administrative expenses. Allocations are based on participant earnings or account balances. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested balance.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies followed by the Plan:
The Plan’s financial statements are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America (“GAAP”).
The preparation of financial statements in conformity with GAAP requires management of the Plan administrator to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from these estimates.
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(c)
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Investment Valuation and Income Recognition
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The Plan’s investments are stated at fair value. Certain investments previously valued at contract value are now stated at net asset value which approximates fair value. See Note 4 for discussion of fair value measurements.
Purchases and sales of securities are recorded on a trade date basis. The Plan presents in the Statements of Changes in Net Assets Available for Benefits the net depreciation in the fair value of its investments, which consists of the realized gains and losses on investments bought and sold during the year, and the unrealized gains and losses on investments held during the year. Expenses associated with the Plan’s investment portfolio are included in net depreciation in fair value of investments. Dividends are recorded on the record date. Interest income is recorded on the accrual basis.
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(d)
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Notes Receivable from Participants
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Notes receivable from participants represents the unpaid principal balance plus any accrued but unpaid interest of participant loans. Interest income on notes receivable from participants is recorded when it is earned. No allowance for credit losses was recorded as of December 31, 2019 and 2018. If a participant ceases to make loan repayments and the Plan administrator deems the participant loan to be in default, the participant loan balance is reduced and a benefit distribution is recorded.
Benefit distributions to participants are recorded when paid.
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(f)
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Recently Adopted Accounting Standards
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Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2018-09, “Codification Improvements”. ASU 2018-09 removes the stable value common collective trust fund from the illustrative example in paragraph 962-325-55-17 to avoid the interpretation that such an investment would never have a readily determinable fair value and, therefore, would always use the net asset value per share practical expedient. Rather, a plan should evaluate whether a readily determinable fair value exists to determine whether those investments may qualify for the practical expedient to measure at net asset value in accordance with Topic 820. The guidance was adopted prospectively as it affects the fair value disclosures only.
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(g)
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Recently Issued Accounting Standards
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In August 2018, the Financial Accounting Standards Board issued ASU No. 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement”. The ASU modifies the disclosure requirements for the fair value measurements in Topic 820, including the elimination, modification to, and addition of certain disclosures. The ASU is effective January 1, 2020. The updated guidance is not expected to have a material impact on the Plan’s financial statements.
NOTE 3. PARTY-IN-INTEREST TRANSACTIONS
The Trustee provides certain accounting and administrative services to the Plan for which approximately $1.5 million and $0.7 million of expenses were charged for the years ended December 31, 2019 and 2018, respectively. Certain Plan investments, amounting to $556.0 million and $473.5 million at December 31, 2019 and 2018, respectively, are units of funds managed by the Trustee.
Certain employees and officers of the Company, who may also participate in the Plan, perform administrative services to the Plan at no cost.
A significant portion of the Plan’s assets were invested in ordinary shares of TechnipFMC (the “FTI Stock Fund”) at December 31, 2018. At December 31, 2018, the Plan held 3,228,123 FTI shares with fair value of $63.2 million and a cost basis of $113.5 million. In March 2019, the FTI Stock Fund was removed from the Plan. The proceeds from the removal of the FTI Stock Fund were reinvested in the Plan.
NOTE 4. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the reporting date. The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities.
Level 2: Observable inputs other than quoted prices included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3: Unobservable inputs reflecting management’s own assumptions about the assumptions market participants would use in pricing the asset or liability.
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 applied maximized the use of observable inputs and minimized the use of unobservable inputs.
The following is a description of the valuation methodologies used for assets measured at fair value:
Common stock and ordinary shares: Valued at the closing price reported on the active market on which the securities are traded.
Interest bearing cash: Valued at the net asset value of the shares held by the Plan at year-end, which is based on the fair value of the underlying investments using information reported by the investment advisor at year-end. This category comprises one fund: Fidelity Institutional Money Market Fund. This fund represents a money market fund with the investment objective to obtain a high level of current income with the preservation of principal and liquidity. The fund’s investment strategies include investing in U.S. dollar-denominated money market securities of domestic and foreign issuers and investing more than 25% of total assets in the financial services industries. There are currently no redemption restrictions on these investments.
The amount invested in this fund is based upon a target approved by the EBC, but may vary on any given business day with the amount of cash awaiting investment and with participant activity such as contributions, redemptions and withdrawals in the FTI Stock Fund. In March 2019, the FTI Stock Fund was removed from the plan. Refer to Note 3 for more information.
Registered investment companies: Valued at quoted market prices, which represent the net asset value of the securities held in such funds at year-end.
The money market fund category included in registered investment companies comprises one fund: Fidelity Investments Money Market Government Portfolio Institutional Class. This fund is valued at net asset value, which approximates fair value. This portfolio represents a mutual fund with an investment objective to seek a high level of current income with the preservation of principal and liquidity. The fund normally invests at least 80% of assets in U.S. government securities and repurchase agreements for those securities. There are currently no redemption restrictions on these investments.
Self-directed brokerage accounts: Valued at the closing price reported on the active market on which the individual securities comprising the brokerage accounts are traded.
Target date funds: Valued at the quoted market price of underlying investments held by the funds at year-end. The funds are custom strategy investment options comprising investments in the underlying core investment options of the Plan.
Stable value fund: Valued at the net asset value of the shares held by the Plan at year-end, which is based on the fair value of the underlying investments using information reported by the investment advisor at year-end. This category is comprised of one fund: Managed Income Portfolio II Class 2. The Portfolio seeks to preserve principal while earning interest income and to maintain a stable net asset value of $1 per share. The Portfolio is a commingled pool managed by Fidelity Management Trust Company. The Portfolio invests in short-term bonds and other fixed income securities such as U.S. treasury bonds, government agency securities, corporate bonds, mortgage-backed securities, commercial mortgage-backed securities, asset-backed securities and derivative instruments, including futures, options and swaps. There are currently no redemption restrictions on these investments.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan’s management believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. There have been no changes in the methodologies used at December 31, 2019 and 2018.
Assets measured at fair value were as follows:
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December 31, 2019
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December 31, 2018
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(In thousands)
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Total
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Level 1
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Level 2
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Level 3
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Total
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Level 1
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Level 2
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Level 3
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Common stock (1)
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$
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—
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$
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—
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$
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—
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$
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—
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$
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63,207
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$
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63,207
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$
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—
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$
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—
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Interest bearing cash
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—
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—
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—
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—
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776
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—
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776
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—
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Registered investment companies:
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U.S. equity funds
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486,078
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486,078
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—
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—
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377,697
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377,697
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—
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—
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International equity funds
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79,388
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79,388
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—
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—
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64,541
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64,541
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—
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—
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Fixed income funds
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78,552
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78,552
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—
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—
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68,719
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68,719
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—
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—
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Money market fund
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40,587
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—
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40,587
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—
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40,304
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—
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40,304
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—
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Self-directed brokerage accounts
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41,230
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41,230
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—
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—
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31,112
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31,112
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—
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—
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Target date funds
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522,507
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—
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522,507
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—
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377,879
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—
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377,879
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—
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Stable value fund (2)
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59,929
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—
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—
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—
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67,915
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—
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—
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—
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Total assets at fair value
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$
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1,308,271
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$
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685,248
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$
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563,094
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$
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—
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$
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1,092,150
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$
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605,276
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$
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418,959
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$
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—
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(1)
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In March 2019, the FTI Stock Fund was removed from the Plan.
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(2)
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Certain investments that are measured at fair value using net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statements of Net Assets Available for Benefits.
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NOTE 5. RISK AND UNCERTAINTIES
The Plan invests in various investment securities. Investment securities are exposed to various risks, such as interest rate, credit risk, and overall market volatility. 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 changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.
NOTE 6. INCOME TAXES
The Plan obtained its latest determination letter on June 12, 2014, covering various amendments to the Plan, in which the IRS determined that the Plan and related trust, as then designed, was in compliance with the applicable requirements of the Code. Additional amendments to the Plan have been made and are not covered by the latest determination letter; however, the management of the Plan administrator and the Plan’s legal counsel believe that the Plan, as amended, is designed and is currently being administered in compliance with the applicable requirements of the Code. Therefore, the management of the Plan administrator believes the Plan is qualified, and the related trust is tax-exempt as of December 31, 2019.
GAAP requires the management of the Plan administrator to evaluate uncertain tax positions taken by the Plan and to recognize a tax liability (or asset) when the position is not more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The management of the Plan administrator has analyzed the tax positions taken by the Plan and has concluded that as of December 31, 2019, there were no uncertain positions taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions. There are currently no audits for any tax periods in progress related to the Plan.
NOTE 7. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per the financial statements to the net assets in the Form 5500 at December 31, 2019 and 2018:
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December 31,
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(In thousands)
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2019
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2018
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Net assets available for benefits per the financial statements
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$
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1,335,435
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$
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1,118,402
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Adjustment from contract value to fair value for interest in collective trust relating to fully benefit-responsive investment contracts
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—
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(769
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)
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Net assets per the Form 5500
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$
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1,335,435
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$
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1,117,633
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The following is a reconciliation of the changes in net assets available for benefits per the financial statements to the changes in net assets available for benefits in the Form 5500 for the year ended December 31, 2019:
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Year Ended
December 31,
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(In thousands)
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2019
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Net increase in net assets available for benefits per financial statements
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$
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217,033
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Change in the adjustment from contract value to fair value for interest in collective trust relating to fully benefit-responsive investment contracts
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769
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Net increase in net assets available for benefits in the Form 5500
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$
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217,802
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NOTE 8. SUBSEQUENT EVENTS
The COVID-19 pandemic, the sharp decline in commodity prices and heightened volatility in global equity markets have affected and may continue to affect Plan assets. Due to the ongoing economic uncertainty and volatility caused by COVID-19, the resulting financial impact to the Plan cannot be reasonably estimated.
In response to the pandemic, the U.S. Federal government passed the “Coronavirus Aid, Relief, and Economic Security (CARES) Act” on March 27, 2020. Pursuant to the CARES Act, the Plan has implemented changes to allow eligible plan participants to request penalty-free distributions of up to $100,000 before December 31, 2020 for qualifying reasons associated with the COVID-19 pandemic, permit increasing the limit for plan loans, permit suspension of loan payments due for up to one year, and permit individuals to stop receiving 2020 required minimum distributions.