Notes to Financial Statements
December 31, 2017 and 2016
General
The Arconic Bargaining Retirement Savings Plan (Bargaining Plan), Arconic Salaried Retirement Savings Plan (Salaried
Plan), Arconic Hourly
Non-Bargaining
Retirement Savings Plan (Hourly
Non-Bargaining
Plan), Arconic Fastener Systems and Rings Retirement Savings
Plan (AFSR Plan), and Arconic Retirement Savings Plan for ATEP Bargaining Employees (ATEP Plan) (collectively, the Plans) are defined contribution savings plans maintained pursuant to a master trust agreement (the
Master Trust) between Arconic Inc. (Arconic or the Company) and the trustee, The Bank of New York Mellon (Trustee). In general, the Plans provide various investment options for amounts withheld
from employees salaries and for company contributions. Plan documents are available to participants upon request.
Effective
January 1, 2017, the Arconic Retirement Savings Plan for ATEP Bargaining Employees was formed for participants in various collective bargaining agreements by RTI International Metals, Inc.
On September 29, 2016, the Alcoa Inc. Board of Directors approved the separation of Alcoa Inc. into two independent publicly traded
companies. On November 1, 2016, the separation transaction was completed and became effective. Alcoa Inc. was renamed Arconic Inc., and the company spun off was named Alcoa Corporation.
In anticipation of the separation of Alcoa Inc., Alcoa USA Corp., a subsidiary of newly formed Alcoa Corporation both before and after the
separation established the Retirement Savings Plan for Hourly Employees of Alcoa USA Corp. and the Retirement Savings Plan for Salaried Employees of Alcoa USA Corp (collectively, the Alcoa USA Corp. Plans). The Alcoa USA Corp. Plans were
effective August 1, 2016. The accounts attributable to all participants who were employees or former employees assigned to Alcoa Corporation were transferred to the Alcoa USA Corp. Plans, and such individuals ceased to be participants in the
Plans. On August 1, 2016, net assets of $983,338,005 were transferred to the Alcoa USA Corp. Plans, of which $374,983,667 were transferred from the Bargaining Plan, $580,086,974 were transferred from the Salaried Plan and $28,267,364 were
transferred from the Hourly
Non-Bargaining
Plan.
In addition, in anticipation of the separation
of Alcoa Inc., the Alcoa Retirement Savings Plan for Bargaining Employees was renamed the Arconic Bargaining Retirement Savings Plan, the Alcoa Retirement Savings Plan for Salaried Employees was renamed the Arconic Salaried Retirement Savings Plan,
the Alcoa Retirement Savings Plan for Hourly
Non-Bargaining
Employees was renamed the Arconic Hourly
Non-Bargaining
Retirement Savings Plan, and the Alcoa Retirement
Savings Plan for Fastener Systems Employees was renamed the Arconic Fastener Systems and Rings Retirement Savings Plan, effective August 1, 2016.
Prior to the separation of Alcoa Inc., one of the Plans investment options was the Alcoa Stock Fund, which primarily invested in Alcoa
Inc. common stock. Upon separation on November 1, 2016, the Alcoa Inc. Stock Fund was renamed the Arconic Stock Fund, and the Alcoa Corporation Stock Fund (a
non-employer
stock fund holding Alcoa
Corporation common stock), was established. On November 1, 2016, each shareholder of record of Alcoa Inc. common stock as of the close of business on October 20, 2016 received one share of Alcoa Corporation common stock for every three
shares of Alcoa Inc. common stock owned. The Alcoa Corporation Stock Fund was frozen to new investments, other than the reinvestment of Alcoa Corporation dividends, if any. The Alcoa Corporation Stock Fund was liquidated on October 6, 2017. Any
funds remaining in the Alcoa Corporation Stock Fund at the liquidation date were credited to participant accounts in the applicable BlackRock LifePath Fund, which are the Plans Qualified Default Investment Alternative Funds.
8
Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies
Notes to Financial Statements
December 31, 2017
and 2016
Reference should be made to the basic prospectus and to the summary plan description of each
Plan for a summary of the important features of each Plan, including eligibility, vesting, employee and company contributions, loans, withdrawals and compliance with the Employee Retirement Income Security Act of 1974 (ERISA).
Eligibility and Vesting
The Plans are available to eligible employees of the Company and certain subsidiary locations that have adopted the Plans. The Bargaining and
ATEP Plans are only available to hourly employees of the Company covered by collective bargaining agreements that provide this benefit. Employees are immediately eligible for plan participation. Participants are fully vested in the value of their
contributions plus actual earnings thereon at all times. Except for the participants in the ATEP Plan, a participant is immediately vested in company contributions, which are therefore nonforfeitable.
For the ATEP Plan, employer contributions and the earnings on those contributions vest incrementally: 33% after one year of service, 67% after
two years and 100% vested after three years of service. Amounts that are not vested upon termination of employment are forfeited and will be used to reduce plan expenses or future company contributions. Total forfeitures that reduced employer
contributions and plan expenses in 2017 are $17,492.
Employee Contributions
Eligible employees may elect to contribute to the Plans up to 25% of eligible compensation as
pre-tax,
not to exceed the IRS limit, or up to 10% as
after-tax,
with a maximum of 25% in the aggregate. Effective March 1, 2015, eligible employees in the Arconic Bargaining Retirement Savings Plan may defer as
pre-tax
savings and/or
pre-tax
catch-up
contributions, a maximum of 50% of amounts earned under the applicable pay for performance plan
(2015 or later plans only) in increments of 10% and subject to the maximums allowable by the Code and Department of Treasury regulations.
Negotiated deferrals, as defined in the Bargaining Plan document, for certain eligible collective bargained employees will be contributed to
their plan accounts as a separate
pre-tax
contribution.
Eligible employees age 50 or older or who
become age 50 during the plan year who meet certain requirements may elect to make additional
pre-tax
catch-up
contributions up to a maximum of $6,000, or such other
amount adjusted for
cost-of-living
increases.
Elections
can be changed effective for the first full payroll period following the election. Participants direct their contributions in multiples of 1% into various investment options offered by the Plans.
Eligible employees hired or rehired on or after August 1, 2006 will be automatically enrolled in the Plans after 60 days of hire or
rehire and subject to automatic payroll deductions equal to 3% of eligible compensation, which will be contributed to the Plans as
pre-tax
savings, unless the employee chooses to either enroll sooner or to not
participate. After 90 days of plan participation, the
pre-tax
savings rate will be increased by 1% on each April 1 until the
pre-tax
savings rate attains a target
rate of 6% of eligible compensation. The employee can change the contribution rate, annual rate increase and target contribution rate or stop automatic enrollment at any time.
9
Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies
Notes to Financial Statements
December 31, 2017
and 2016
The Plans also accept rollover contributions of amounts representing distributions from other
qualified defined benefit or defined contribution plans to the extent the rollover is permitted under Section 402(c) of the Internal Revenue Code. An eligible employees rollover contribution is credited to his or her account and
thereafter treated like the participants
pre-tax
savings with respect to withdrawals, loans, and investment options under the Plans. The Plans do not accept rollover contributions from Roth individual
retirement accounts.
Employer Contributions
For the Hourly
Non-Bargaining
Plan and AFSR Plan, participating locations may elect to make a matching
employer contribution up to 6% of the participants eligible compensation. For the Salaried Plan, participating locations must make a matching employer contribution up to 6% of the participants eligible compensation. The
employer match for contributions to the Bargaining Plan and ATEP Plan is based upon the various collective bargaining agreements. The Company does not match negotiated deferral contributions under the Bargaining Plan.
The employer match for the Plans is contributed in the same manner as the participants other investment elections. If the participant
has not made investment elections, company matching contributions will automatically be invested in the appropriate targeted maturity fund based on the participants year of birth.
In addition, certain salaried and
non-bargaining
eligible employees of the Plans hired or rehired
after March 1, 2006 and certain bargained employees hired or rehired as of specified dates negotiated with the unions will receive an employer retirement income contribution in the amount of 3% of applicable eligible compensation per pay
period. These employer contributions are allocated to the participants accounts in the same percentages as the participants other investment elections.
Certain eligible employees in the Bargaining Plan hired or rehired as of specified dates negotiated with the unions will receive retiree
medical savings contributions to their accounts in an amount equal to $0.40 per hour worked. These employer contributions are contributed in the appropriate targeted maturity fund based on the participants year of birth but may be transferred
by the participant from the default fund to any eligible fund.
Participant Accounts
Each participants account is credited with the participants contribution and allocations of (a) the companys
contribution and (b) Plan earnings. Allocations of Plan earnings are based on individual participant investment earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from
the participants vested account.
Notes Receivable From Participants
Generally, participants may borrow from their individual account balances in the Plans, excluding employer contributions made on or after
January 1, 2011, employer retirement income contributions, retiree medical savings contributions, legacy RTI Money Purchase Plan (RTI MPP) balances and legacy RTI Roth Balances. However, participants in the ATEP plan may borrow
against employer contributions.
The minimum loan amount permitted by the Plans is $1,000. The maximum allowable loan from the Plans is
the lesser of 50% of the participants account balance or $50,000. Loans are collateralized by a portion of the participants account balance, and repayments are made by periodic payroll deductions. Interest is charged on all loans at the
prime rate plus 1% at the time the loan is executed. Interest rates ranged from 4.25% to 10.50% as of December 31, 2017 and 2016. For each loan request, a $100 loan processing fee is deducted from the loan amount to cover administrative
expenses.
10
Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies
Notes to Financial Statements
December 31, 2017
and 2016
Payment of Benefits
While actively employed, participants have access to account funds through loans,
non-hardship
withdrawals of
after-tax
and rollover contributions, hardship withdrawals of
pre-tax
contributions and withdrawals for participants over age 59
1
⁄
2
. No portion of a legacy RTI MPP balance shall be available for withdrawals during employment.
On termination of service due to death, disability or retirement, participants with an account balance greater than $5,000 ($1,000 for the
ATEP Plan) may elect to leave their investment in the Plans or receive a
lump-sum
distribution. Participants who leave their investments in the Plans and elect to receive a distribution at a later date are
permitted four partial payouts each calendar year, however, each partial payout must be at least $250. Plan provisions require a
lump-sum
distribution upon the later of December 31, 2016, or when the
participant attains age 69, except for legacy RTI MPP balances. The default election for RTI MPP distribution is a Qualified Joint and Survivor Annuity, which the Trustee shall purchase from an insurance company. Participants can choose alternative
distribution options. Notwithstanding the forgoing, if a participant attains age 70 prior to December 31, 2016, such distribution shall be made when the participant attains age 70.
Risks and Uncertainties
The Plans invest in 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 Individual Plan Net Assets Available for Benefits and Statement of Changes in Individual Net Assets Available for Benefits.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plans to terminate the Plans subject to the provisions
of ERISA. In the event of a plan termination, any unallocated assets of the Plans shall be allocated to participant accounts and distributed in such a manner as the Company may determine. Also, the Company has the right under the Plans to
discontinue its contributions at any time.
2.
|
Summary of Accounting Policies
|
Basis of Accounting
The financial statements of the Plans are prepared under the accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America (US GAAP).
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, and changes therein and to disclose contingent assets and liabilities. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
Investments are stated 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 transaction between market participants at the measurement date. See Note 4 for discussion of fair value measurements.
11
Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies
Notes to Financial Statements
December 31, 2017
and 2016
Investment contracts held by a defined contribution plan are reported at contract value.
Contract value is the relevant measurement for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit responsive investment contracts because contract value is the amount participants would
receive if they were to initiate permitted transactions under the terms of the plan.
Purchases and sales of securities are recorded on a
trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend
date. Plan interest in Arconic Retirement Savings Plan Master Trust investment income and other
investment income includes the Plans unrealized and realized gains and losses on investments.
Payments of Benefits
Benefits are recorded when paid.
Notes Receivable From Participants
The Notes Receivable from Participants are reported at the unpaid principal balance of borrowings from individual account balances along with
the accrued and unpaid interest. Loans in default are reclassified as benefit payments to participants based upon the terms of the plan.
Administrative Expenses
The Fixed Income Fund, Arconic Stock Fund, and Alcoa Corporation Stock Fund investment management fees are paid by the Plans from assets of
their respective funds. The investment management fees for the Fixed Income Fund are based upon a percentage of the funds net assets. For the Arconic Stock Fund and Alcoa Corporation Stock Fund, the investment fees are based upon the number of
stock transactions within the fund during the year.
Many funds in the Plans are registered investment companies. Registered investment
companies incur expenses that reduce the earnings in the fund and are reflected in the daily net asset value (NAV). Expenses charged by registered investment companies include asset management and administrative fees.
The funds offered by BlackRock Institutional Trust Company, N.A., and the Trustee incur expenses that reduce earnings in the fund and are
reflected in the NAV. These funds are not available to individual investors and are not publicly traded. Expenses charged by these funds include asset management and administrative fees.
Prior to July 1, 2017, participant investments in all funds (excluding those included in the self-directed brokerage account) are subject
to an administrative expense fee, which is used to pay the expenses of the Plans such as trustee, recordkeeping, audit, consulting, and other administrative expenses. This fee is charged on a daily basis and is reflected in the price at which
participants transact. Effective July 1, 2017, the administrative expense fee charged daily will no longer apply. Instead, a new monthly fee will be charged to all participants, including those who have all funds in the self-directed brokerage
window. A new additional monthly account maintenance fee will apply if any investments are through the brokerage window.
For each loan
request, a $100 loan processing fee is deducted from the loan amount to cover administrative expenses. The 2017 administrative expenses charged to participants were $716,792 for the Salaried Plan, $334,875 for the Bargaining Plan, $257,438 for the
Hourly
Non-Bargaining
Plan, $209,214 for the Fastener Systems Plan and $16,827 for the ATEP Plan.
12
Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies
Notes to Financial Statements
December 31, 2017
and 2016
The fees described above are included within Plan Interest in Arconic Retirement Savings Plan
Master Trust investment income.
Recently Adopted Accounting Guidance
In August 2014, the FASB issued
ASU 2014-15,
Disclosure of Uncertainties about an
Entitys Ability to Continue as a Going Concern
.
ASU 2014-15
explicitly requires management to assess an entitys ability to continue as a going concern, and to provide related footnote
disclosures in certain circumstances. Currently, there is no guidance in US GAAP about managements responsibility to evaluate whether there is substantial doubt about an entitys ability to continue as a going concern or to provide
related footnote disclosures. The ASU is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. The Plans adopted
ASU 2014-15
on January 1, 2016 and
its adoption did not have an impact to the Plans financial statements.
Recently Issued Accounting Guidance
In February 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2017-06
Defined Contribution Pension Plans (Topic 962): Employee Benefit Plan Master Trust Reporting.
ASU 2017-06
relates to the presentation and disclosure reporting
requirements by an employee benefit plan for its interest in a master trust. The guidance will require, for each master trust in which a plan holds an interest, a plans interest in that master trust and any change in that interest to be
presented in a separate line items in the statement of net assets available for benefits and in the statement of changes in net assets available for benefits, respectively. Additionally, the guidance removes the requirement to disclose the
percentage interest in the master trust for plans with divided interests and requires that all plans disclose the dollar amount of their interest in each of those general types of investments. Lastly, the guidance requires all plans to disclose
their master trusts other asset and liability balances and the dollar amount of the plans interest in each of those balances. This ASU is effective for fiscal years beginning after December 15, 2018 and is to be applied
retroactively. Early adoption is permitted. The Plans management is currently reviewing the impact of this guidance on the Plans financial statements and notes to financial statements.
13
Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies
Notes to Financial Statements
December 31, 2017
and 2016
The Plans offer a variety of investment options which are held in
safekeeping in a Master Trust under a trust arrangement by the Trustee. Each participating Plan has a divided interest in the Master Trust based on individual participant investment elections. At December 31, Master Trust net assets were
comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Master trust net assets
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
|
|
|
|
|
|
|
Arconic Stock Fund (includes $4,129,923 of investments in a common collective trust)
|
|
$
|
156,880,957
|
|
|
$
|
123,838,681
|
|
Alcoa Corporation Stock Fund
|
|
|
|
|
|
|
57,182,608
|
|
Shares of Registered Investment Companies
|
|
|
1,474,441,618
|
|
|
|
1,250,039,272
|
|
Other Investments
|
|
|
801,693,573
|
|
|
|
483,768,345
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value in Arconic Retirement Savings Plan Master Trust
|
|
|
2,433,016,148
|
|
|
|
1,914,828,906
|
|
Investment contracts at contract value
|
|
|
377,626,476
|
|
|
|
400,800,488
|
|
|
|
|
|
|
|
|
|
|
Total value of interest in Arconic Retirement Savings Plan Master Trust
|
|
$
|
2,810,642,624
|
|
|
$
|
2,315,629,394
|
|
|
|
|
|
|
|
|
|
|
The following table lists the ownership percentages of the Plans in the Master Trust net assets as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Percent ownership of the Plans in Savings Plan Master Trust
|
|
|
|
|
|
|
|
|
Bargaining Plan
|
|
|
20.20
|
%
|
|
|
19.58
|
%
|
Salaried Plan
|
|
|
52.91
|
|
|
|
54.66
|
|
Hourly
Non-Bargaining
Plan
|
|
|
13.42
|
|
|
|
12.65
|
|
AFSR Plan
|
|
|
12.48
|
|
|
|
13.11
|
|
ATEP Bargaining Plan
|
|
|
0.99
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
14
Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies
Notes to Financial Statements
December 31, 2017
and 2016
For the year ended December 31, 2017, the Master Trust investments (including gains and
losses on investments bought and sold, as well as held during the year) appreciated in value as follows:
|
|
|
|
|
Net investment income from Master Trust investments
|
|
|
|
|
Investment income
|
|
|
|
|
Arconic Stock Fund (includes $49,656 of income from common collective trusts)
|
|
$
|
55,964,507
|
|
Alcoa Corporation Stock Fund (includes $13,712 of income from common collective trusts)
|
|
|
28,989,747
|
|
Shares of Registered Investment Companies
|
|
|
235,867,476
|
|
Commingled trusts
|
|
|
80,499,814
|
|
|
|
|
|
|
|
|
|
401,321,544
|
|
Interest
|
|
|
8,598,366
|
|
Registered Investment Companies dividends
|
|
|
23,114,333
|
|
Arconic stock dividends
|
|
|
1,432,784
|
|
|
|
|
|
|
Net investment income from Arconic Retirement Savings Plan Master Trust investments
|
|
$
|
434,467,027
|
|
|
|
|
|
|
In addition to the investments held in the Master Trust, participants have the option to invest in a
self-directed brokerage account that allows the participants to select and manage investments from a variety of options not directly available in the Plans.
|
|
|
|
|
Net investment income from other investments outside of Master Trust
|
|
|
|
|
Net investment income
|
|
$
|
10,971,107
|
|
Interest
|
|
|
51,172
|
|
Dividends & capital gains
|
|
|
1,214,906
|
|
|
|
|
|
|
Net investment income from other investments outside of Master Trust
|
|
$
|
12,237,185
|
|
|
|
|
|
|
15
Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies
Notes to Financial Statements
December 31, 2017
and 2016
4.
|
Fair Value Measurements
|
Financial Accounting Standards Board (FASB)
Accounting
Standards Codification
(ASC) 820,
Fair Value Measurements and Disclosures
, provides the framework for measuring fair value. That framework provides a fair value 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 under ASC 820 are described below:
|
|
|
|
|
Level 1
|
|
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active
markets that the Plan has the ability to access.
|
|
|
Level 2
|
|
Inputs to the valuation methodology include:
|
|
|
|
|
|
|
|
Quoted prices for similar assets or liabilities in active markets;
|
|
|
|
|
|
|
|
Quoted prices for identical or similar assets or liabilities in inactive markets;
|
|
|
|
|
|
|
|
Inputs other than quoted prices that are observable for the asset or liability;
|
|
|
|
|
|
|
|
Inputs that are derived principally from or corroborated by observable market data correlation or other means.
|
|
|
Level 3
|
|
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
The assets or liabilitys 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 have been no changes in methodologies
used at December 31, 2017 and 2016.
Cash and Cash Equivalents
Valued at cost which approximates fair value.
Fixed Income Securities
Valued on the basis of valuations furnished by Trustee-approved independent pricing services. These services determine valuations for normal
institutional-size
trading units of such securities using models or matrix pricing, which incorporates yield and/or price with respect to bonds that are considered comparable in characteristics such as rating,
interest rate and maturity date and quotations from bond dealers to determine current value. If these valuations are deemed to be either not reliable or not readily available, the fair value will be determined in good faith by the Trustee.
Equity Securities
Valued
at the closing price reported on the active market on which the individual securities are traded.
16
Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies
Notes to Financial Statements
December 31, 2017
and 2016
Mutual Funds
Valued at the daily closing price as reported by the fund.
Commingled Trusts
Valued
at the NAV of shares held by the Plans at year end. These funds are not publically listed.
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.
There are no unfunded commitments with respect to commingled trusts. Participants can transact daily with these funds, however, significant
withdrawals may be subject to redemption restrictions, at the trustees discretion, to the extent that it is determined such actions would disrupt management of the fund.
The following table sets forth by level, within the fair value hierarchy, the Plans assets at fair value as of December 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
Measured at Net
Asset value
(a)
|
|
|
Total
|
|
Fair Value Measurements at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets in Arconic Retirement Savings Plan Master Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities (Arconic common stock)
|
|
$
|
152,756,960
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
152,756,960
|
|
Mutual funds
|
|
|
1,474,441,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,474,441,618
|
|
Commingled trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
805,817,570
|
|
|
|
805,817,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of assets in Arconic Retirement Savings Plan Master Trust
|
|
|
1,627,198,578
|
|
|
|
|
|
|
|
|
|
|
|
805,817,570
|
|
|
|
2,433,016,148
|
|
Assets outside Arconic Retirement Savings Plan Master Trust
|
|
|
84,730,464
|
|
|
|
776,897
|
|
|
|
|
|
|
|
|
|
|
|
85,507,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
1,711,929,042
|
|
|
$
|
776,897
|
|
|
$
|
|
|
|
$
|
805,817,570
|
|
|
$
|
2,518,523,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
In accordance with Subtopic
820-10,
certain investments that were measured at 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 line items presented in the statement of net assets available for benefits.
|
17
Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies
Notes to Financial Statements
December 31, 2017
and 2016
The following table sets forth by level, within the fair value hierarchy, the Plans
assets at fair value as of December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Assets
Measured at Net
Asset value
(a)
|
|
|
Total
|
|
Fair Value Measurements at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets in Arconic Retirement Savings Plan Master Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities (Arconic and Alcoa Corp. common stock)
|
|
$
|
175,163,961
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
175,163,961
|
|
Mutual funds
|
|
|
1,250,039,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250,039,272
|
|
Commingled trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
489,625,673
|
|
|
|
489,625,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of assets in Arconic Retirement Savings Plan Master Trust
|
|
|
1,425,203,233
|
|
|
|
|
|
|
|
|
|
|
|
489,625,673
|
|
|
|
1,914,828,906
|
|
Assets outside Arconic Retirement Savings Plan Master Trust
|
|
|
76,290,266
|
|
|
|
802,317
|
|
|
|
|
|
|
|
|
|
|
|
77,092,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
$
|
1,501,493,499
|
|
|
$
|
802,317
|
|
|
$
|
|
|
|
$
|
489,625,673
|
|
|
$
|
1,991,921,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
In accordance with Subtopic
820-10,
certain investments that were measured at 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 line items presented in the statement of net assets available for benefits.
|
The Plans hold a portfolio of investment contracts, all of which
are synthetic. The Investment Contracts are held in the Fixed Income Fund (the Fund) and are credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses. The wrap providers are
contractually obligated to repay the principal by providing a guarantee that the crediting rate will not fall below 0%.
Contract value,
as reported to the Plans by the investment manager, represents contributions made under contract, 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.
Investment Contracts use the crediting rate formula to convert market value changes in the
covered assets into income distributions in order to minimize the difference between the market and contract value of covered assets over time. Using the crediting rate formula, an estimated future market value is calculated by compounding the
Funds current market value at the Funds current yield to maturity for a period equal to the Funds duration. The crediting rate is the discount rate that equates estimated future market value with the Funds current contract
value, but it may not be less than zero.
The crediting rate, and hence the Funds return, may be affected by many factors, including
purchases and redemptions by shareholders. If the market value of the covered assets is higher than their contract value, the crediting rate will ordinarily be higher than the yield of the covered assets. Under these circumstances, cash from new
investors will tend to lower the crediting rate, and redemptions by existing shareholders will tend to increase the crediting rate. The opposite is ordinarily true if the market value of the covered assets is lower than their contract value. There
are no reserves against contract value for credit risk of the insurance companies or otherwise.
18
Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies
Notes to Financial Statements
December 31, 2017
and 2016
Certain events limit the ability of the Plans to transact at contract value with the issuer.
Such events include the following: (1) the Plans failure to qualify under Section 401(a) or Section 401(k) of the Internal Revenue Code, (2) the establishment of a defined contribution plan that competes with the Plan for
employee contributions, (3) any substantive modification of the Plan or the administration of the Plan that is not consented to by the insurance companies, (4) complete or partial termination of the Plan, (5) any change in law,
regulation or administration ruling applicable to the Plan that could have a material adverse effect on the Funds cash flow, (6) merger or consolidation of the Plans with another plan, the transfers of the Plans assets to another
plan, or the sale,
spin-off
or merger of a subsidiary or division of the plan sponsor, (7) any communication given to participants by the plan sponsor or any other plan fiduciary that is designed to
induce or influence participants not to invest in the Fund or to transfer assets out of the Fund, (8) exclusion of a group of previously eligible employees from eligibility in the Plan, (9) any early retirement program, group termination,
group layoff, facility closing, or similar program or (10) any transfer of assets from the Fund directly to a competing option.
The
Plans administrator does not believe that the occurrence of any such event, which would limit the Plans ability to transact at contract value with participants, is probable.
The Investment Contracts generally allow the contract issuers (banks or insurance companies) to terminate the agreement. However, the banks or
insurance companies would be required to grant the Fund a right to amortize any market to book differential over an agreed upon period of time.
6.
|
Related-Party Transactions
|
The Plans own shares of common stock of Arconic Inc. through
the investment in the Arconic Inc. Stock Fund and formerly owned the common stock of Alcoa Inc. through investment in the Alcoa Inc. Stock Fund, therefore, these transactions qualify as
party-in-interest
transactions. These transactions are exempt as defined in ERISA Section 408 and the regulations there under. During 2017, purchases and sales of shares of common stock in the Arconic
Inc. Stock Fund were $7,220,301 and $28,156,180, respectively. Dividends earned on Arconic Inc. common stock during 2017 were $ 1,432,784. As of December 31, 2017 and 2016 the Plans owned 5,605,760 and 6,463,679 shares of Arconic Inc. common
stock, respectively.
The Company may pay certain administrative expenses or perform administrative functions on behalf of the Plans.
The Plans invest in funds managed by The Bank of New York Mellon. The Bank of New York Mellon is the trustee as defined by the Plans, and
therefore these transactions, and expenses paid to Bank of New York Mellon, qualify as
party-in-interest
transactions.
Participants may borrow from their individual account balances in the Plans. The loan program is discussed in Note 1. These transactions
qualify as
party-in-interest
transactions.
In January 2017, assets of $127,198,457 from the RTI Employee
Savings and Investment Plan, the RTI International Metals, Inc. Employee Savings and Investment Plan, and the RTI Bargaining Unit Employee Savings and Investment Plan were transferred to the Employees Retirement Savings Plans of Arconic
Inc. and Subsidiary Companies. Of the amount transferred, the
Non-Bargaining
Plan received $53,658,873, the Salaried Plan received $ 50,668,194, and the Arconic Retirement Savings Plan for ATEP
Bargaining Employees received $ 22,871,390.
19
Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies
Notes to Financial Statements
December 31, 2017
and 2016
Effective June 1, 2017, assets of $29,255,514 of certain actively employed, collectively
bargained, hourly participants at the Hampton, Virginia location of Howmet Castings & Services Inc. who were members of the United Steelworkers union were transferred from the Hourly
Non-Bargaining
Plan to the Bargaining Plan.
In January 2016, assets of $40,437,715 from the Firth Rixson, Inc. Employee Savings Plan were
transferred to the Employees Retirement Savings Plans of Arconic Inc. and Subsidiary Companies. Of the amount transferred, the Fasteners Systems Plan received $36,873,851, the Salaried Plan received $2,274,206, and the Hourly
Non-Bargaining
Plan received $1,289,658.
The Internal Revenue Service (IRS) has determined and informed
the Company by letters dated April 28, 2017 for the Bargaining Plan, Salaried Plan and the Hourly
Non-Bargaining
Plan, a letter dated May 17, 2017 for the AFSR Plan, and a letter dated April 10,
2018 for the ATEP Plan that the Plans are qualified and the trust established under the Plans is tax exempt under the appropriate sections of the Code. These plans have been amended since receiving the determination letters. However, the Plans
administrator and the Plans tax counsel believe that the Plans are currently designed and being operated in compliance with the applicable requirements of the Code. Therefore, they believe the Plans were qualified and the related trust was
tax-exempt
as of the financial statements date.
US GAAP require the Plans management to
evaluate tax positions taken by the Plans and recognize a tax liability (or asset) if the organization has taken an uncertain position that would not be sustained upon examination by the IRS. The Plans administrator and its tax counsel have
analyzed the tax positions taken by the Plans and have concluded that as of December 31, 2017 and 2016, there are no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure to
the financial statements. As such, no reserve is required under US GAAP. The Plans are subject to audits by the IRS; however, there are no current IRS audits for any tax periods in progress. The Plans administrator and its tax counsel
believe the Plans are no longer subject to IRS audits outside the statutory audit period.
Management has evaluated the events and transactions that have
occurred through June 25, 2018, the date the financial statements were available to be issued, and noted no items requiring adjustment of the financial statements or additional disclosures, other than that which is noted below.
In January 2018, the Company announced the freeze of its U.S. defined benefit pension plans for salaried and
non-bargained
hourly employees, effective April 1, 2018. Benefit accruals for future service and compensation under all of the Companys qualified and
non-qualified
defined benefit pension plans for U.S. salaried and
non-bargained
hourly employees (the Pension Plans) will cease. In connection with this change, effective April 1, 2018, impacted employees
will commence receiving an employer contribution of 3% of eligible compensation under the Salaried Plan, and, for the period from April 1, 2018 through December 31, 2018, an additional transition employer contribution of 3% of eligible
compensation.
20