NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2021 and 2020
1. Description of the Plan
The following description of the PVH Associates Investment Plan for Residents of the Commonwealth of Puerto Rico (the “Plan”) provides only general information. Participants should refer to the Plan Document for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution plan covering salaried and hourly retail field workers of PVH Corp. (the “Company”) who are residents of the Commonwealth of Puerto Rico, at least age 21 or older, and have completed the earlier of; at least three consecutive months of service and are regularly scheduled to work at least 20 hours per week; or have completed at least 1,000 hours of service during the first 12 months of employment or in any subsequent calendar year. Associates whose principal terms and conditions of employment are subject to the provisions of a collective bargaining agreement which does not provide for active participation in the Plan are excluded. The Plan is subject to the reporting and disclosure requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Trustee and Recordkeeper
The Plan’s trustee is Banco Popular. The Plan’s directed employee benefit custodian and recordkeeper are Great-West Trust Company and Empower Retirement, respectively.
Participant Contributions
Participants may contribute up to 75% of eligible annual compensation, as defined by the Plan, limited to $15,000 per annum for the 2021 and 2020 Plan years by the Puerto Rico Internal Revenue Code (“IRC”). In addition, eligible participants who have attained age 50 before the close of the Plan year are eligible to make catch-up contributions up to $1,500 for the 2021 and 2020 Plan years.
Participants are automatically enrolled on the first of the month following the completion of three consecutive months of service with a before-tax base pay contribution rate of 3% unless they affirmatively elect not to participate in the Plan or elect to contribute at a different rate. Contributions for an automatically enrolled participant are invested in the qualified default investment alternative designated by the Plan administrator, until changed by the participant. In addition, each participant who is automatically enrolled in the Plan will be enrolled in the annual automatic increase program at a rate of 1% and capped at 10%.
PVH ASSOCIATES INVESTMENT PLAN FOR RESIDENTS
OF THE COMMONWEALTH OF PUERTO RICO
NOTES TO FINANCIAL STATEMENTS
Employer Contributions
The Company matches 100% of the first 1% of eligible compensation that a participant contributes to the Plan, plus 50% of the next 5% of eligible compensation contributed by the participant. To ensure that participants receive the maximum Company match under the Plan’s contribution provisions, the Company makes an additional “true-up” contribution to all participant accounts who did not receive the full match amount to which they are entitled. True-up contributions are included in employer contributions receivable and are made in the following plan year prior to the Company’s tax filing date. The true-up contributions as of December 31, 2021 and 2020 were $221 and $1,431, respectively.
Participant Accounts
Each participant’s account is credited with the participant’s contributions and allocations of (a) the Company’s contributions and (b) Plan earnings. Forfeited balances of terminated participants’ non-vested accounts are used to reduce future Company contributions.
Vesting
Amounts attributable to employee contributions and the allocated earnings thereon are immediately vested. Participants become 100% vested in Company contributions and the allocated earnings thereon after two years of service. Upon death, permanent disability, or reaching age 65, participants or their beneficiaries become 100% vested in Company contributions.
Investment Options
Upon enrollment in the Plan, a participant may direct employee and Company contributions into any of the various investment options. A participant may contribute a maximum of 25% of contributions in PVH Corp. common stock.
PVH ASSOCIATES INVESTMENT PLAN FOR RESIDENTS
OF THE COMMONWEALTH OF PUERTO RICO
NOTES TO FINANCIAL STATEMENTS
Notes Receivable from Participants
Participants may borrow from the Plan, with certain restrictions, using their vested account balance as collateral. The minimum loan amount is $1,000 and the maximum loan amount is the lesser of (i) $50,000 reduced by the participant’s highest outstanding loan balance during the previous 12 months, or (ii) 50% of the vested value of the participant’s account. Interest is fixed for the term of the loan at the prime rate plus 1%. Loan repayments are made through payroll deductions, which may be specified for a term of 1 to 5 years or up to 15 years for the purchase of a primary residence. Upon termination of employment, a participant is given 90 days to repay the loan in full or to establish loan repayments through an ACH debit origination before it is considered to be in default. Delinquent loans are considered to be distributions based on the terms of the Plan document. Participant notes receivable are measured as the unpaid principal balance plus any accrued but unpaid interest. No allowance for credit losses has been recorded as of December 31, 2021 and 2020.
At December 31, 2021, outstanding notes receivable from participants totaled $56,626, with maturity dates through 2026 at interest rates ranging from 4.25% to 6.50%.
Forfeitures
Contributions made on behalf of non-vested employees who have terminated employment are retained by the Plan and are used to reduce the Company’s future matching contributions. In 2021 and 2020, forfeitures of $1,438 and $1,004, respectively, were used to reduce the Company’s matching contributions. At December 31, 2021 and 2020, forfeited non-vested accounts totaled $2,182 and $745, respectively.
Payment of Benefits
Participants electing final distributions will receive payment in the form of a lump sum amount or installment payments equal to the value of their vested account unless the participant notifies the Company of their intent to receive all or a portion of their investment balance in PVH Corp. common stock in the form of shares.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts.
PVH ASSOCIATES INVESTMENT PLAN FOR RESIDENTS
OF THE COMMONWEALTH OF PUERTO RICO
NOTES TO FINANCIAL STATEMENTS
Disaster Relief Withdrawals
Effective January 1, 2020, the Plan adopted certain provisions for special disaster relief withdrawals as permitted by the Puerto Rico Treasury Department Internal Revenue Circular Letters 20-09 and 20-23 due to the earthquakes in Puerto Rico and the global pandemic. Distributions related to these amendments during the year ended December 31, 2020 were $243,578. Coronavirus-related distributions had to have been made by June 30, 2020.
2. Significant Accounting Policies
Basis of Accounting
The accompanying financial statements of the Plan were prepared using the accrual basis of accounting.
Payment of Benefits
Benefits are recorded when paid.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires Plan management to make estimates and assumptions that affect the reported amounts of assets and liabilities therein, and disclosures of contingent assets and liabilities. Accordingly, actual results may differ from those estimates.
Administrative Expenses
In general, costs and expenses of administering the Plan are paid and absorbed by the Plan or the Company. The Plan's administrative expenses may be paid for through offsets and/or payments associated with one or more of the Plan's investment options. Investment management or related fees associated with certain investment fund options are paid by participants.
Investments
Investments are recorded in the accompanying financial statements at fair value, as disclosed in Note 4, except for the investment fund stated at contract value, as disclosed in Note 5. All assets of the Plan are held by the Plan custodian and are segregated from the assets of the Company.
PVH ASSOCIATES INVESTMENT PLAN FOR RESIDENTS
OF THE COMMONWEALTH OF PUERTO RICO
NOTES TO FINANCIAL STATEMENTS
Purchases and sales of securities are reflected on a trade-date basis. Dividend income is recognized on the ex-dividend date. Interest earned on investments is recognized on the accrual basis. Net appreciation (depreciation) in fair value of investments includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
Plan Amendments
In September 2021, the Plan adopted the following amendments.
Effective January 1, 2022, a part-time associate will be eligible to become a participant in the Plan after completion of at least 500 hours of service in their first employment year or during any subsequent calendar year and having attained the age of 21. However, a part-time associate is not eligible to receive Company contributions until they complete 1,000 hours of service in a calendar year.
Effective January 1, 2022, the Company will make an automatic employer contribution of 3.5% of eligible compensation on behalf of each eligible participant who is hired or rehired by the Company on or after January 1, 2022. The automatic employer contribution is intended as a substitute for pension accruals under the Company’s pension plan for associates who are residents of the commonwealth of Puerto Rico, which was closed to employees hired or rehired after December 31, 2021.
Effective January 1, 2022, participants can make after-tax non-Roth contributions to the Plan, subject to Puerto Rico IRC limits. The Company will not match such contributions.
Reclassifications
Certain amounts from 2020 financial statements have been reclassified in order to conform to the 2021 presentation. Investments have been reclassified to present amounts reported at fair value and amounts reported at contract value.
PVH ASSOCIATES INVESTMENT PLAN FOR RESIDENTS
OF THE COMMONWEALTH OF PUERTO RICO
NOTES TO FINANCIAL STATEMENTS
3. Party-In-Interest Transactions
Plan assets may be invested in PVH Corp. stock directly. The Company is the Plan sponsor, therefore transactions involving the Company’s stock qualify as party-in-interest transactions. During the years ended December 31, 2021 and 2020, the Plan purchased 44 and 51 shares, respectively, and sold 50 and 41 shares of the Company’s common stock, respectively. The Plan also received $32 and $33 during 2021 and 2020, respectively, from the Company as payment of dividends on its common stock. Certain legal and accounting fees, and administrative expenses relating to the maintenance of participant eligibility records are paid by the company participating in the Plan, and accordingly, are not included in the financial statements of the Plan. Additionally, notes receivable from participants also qualify as exempt party-in-interest transactions.
4. Fair Value Measurements
The FASB defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants at the measurement date. The guidance establishes a three level fair value hierarchy that prioritizes the inputs used to measure fair value. The three levels of the hierarchy are defined as follows:
Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Plan has the ability to access at the measurement date.
Level 2 – Observable inputs other than quoted prices included in Level 1, including quoted prices for identical assets or liabilities in inactive markets, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability and inputs derived principally from or corroborated by observable market data.
Level 3 – Unobservable inputs reflecting the Plan’s own assumptions about the inputs that market participants would use in pricing the asset or liability based on the best information available.
If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. There were no transfers between levels in the years ended December 31, 2021 or 2020.
PVH ASSOCIATES INVESTMENT PLAN FOR RESIDENTS
OF THE COMMONWEALTH OF PUERTO RICO
NOTES TO FINANCIAL STATEMENTS
The following tables set forth the financial assets of the Plan by level within the fair value hierarchy, as of December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at |
| | | December 31, 2021 |
| Asset Category | | Total | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | | | | | |
PVH Corp. common stock(1) | | $ 93,009 | | $ 93,009 | | $ - | | $ - |
Mutual funds(2) | | 1,318,186 | | 1,318,186 | | - | | - |
| Total investments measured at fair value | | $1,411,195 | | $1,411,195 | | $ - | | $ - |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at |
| | | December 31, 2020 |
| Asset Category | | Total | | Quoted Prices In Active Markets for Identical Assets (Level 1) | | Significant Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| | | | | | | | |
PVH Corp. common stock(1) | | $ 82,370 | | $ 82,370 | | $ - | | $ - |
Mutual funds(2) | | 1,213,491 | | 1,213,491 | | - | | - |
| Total investments measured at fair value | | $1,295,861 | | $1,295,861 | | $ - | | $ - |
| | | | | | | | |
(1) Valued at the closing price of PVH Corp. common stock as determined by the closing price in the active market in which the securities are traded.
(2) Valued at the net asset value of the fund, as determined by the closing price in the active market in which the individual fund is traded.
PVH ASSOCIATES INVESTMENT PLAN FOR RESIDENTS
OF THE COMMONWEALTH OF PUERTO RICO
NOTES TO FINANCIAL STATEMENTS
5. Stable Value Fund
The Plan holds an investment in a Wells Fargo Stable Value Fund (the “Fund”) that meets the fully benefit-responsive investment contract (“FBRIC”) criteria and, therefore, is reported at contract value. Contract value is equal to a participant’s principal balance plus any accrued interest and is the relevant measure for FBRICs because this is the amount received by participants when they initiate permitted transactions under the terms of the Plan.
The Fund is exclusively managed for the Plan and seeks to provide participants with a moderate level of stable income without principal volatility. The Fund’s underlying investments are investments and security-backed investment contracts. An investment contract is a contract issued by a financial institution to provide a stated rate of return to the buyer of the contract for a specified period of time. A security-backed contract has similar characteristics to a traditional investment contract and is comprised of two parts: the first part is a fixed-income security or portfolio of fixed income securities and the second part is a contract value guarantee (wrapper) provided by a third party. Wrappers provide contract value payments for certain participant-initiated withdrawals and transfers, a floor interest crediting rate and the return of fully accrued contract value at maturity.
The yield earned by the Fund at December 31, 2021 and 2020 was 1.90% and 0.64%, respectively. This represents the annualized earnings of all investments in the Fund, including all the earnings recorded at the underlying collective trust funds, divided by the fair value of all investments in the Fund at December 31, 2021 and 2020, respectively. The yield earned by the Fund with an adjustment to reflect the actual interest rate credited to participants in the Fund at December 31, 2021 and 2020 was 1.30% and 2.20%, respectively. This represents the annualized earnings credited to participants in the Fund, divided by the fair value of all investment in the Fund at December 31, 2021 and 2020, respectively.
Plan participant-initiated withdrawals from the Fund are honored at any time without penalty unless payments are being delayed to all Fund unit holders under certain circumstances, such as credit defaults and impairment of underlying assets and certain Company events such as significant restructuring of operations or large scale layoffs, which are not probable of occurring. Company-initiated withdrawal from the Fund requires a twelve month notification period.
PVH ASSOCIATES INVESTMENT PLAN FOR RESIDENTS
OF THE COMMONWEALTH OF PUERTO RICO
NOTES TO FINANCIAL STATEMENTS
6. Risks and Uncertainties
The Plan invests in various investment securities, including the Company’s stock. 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 amount reported in the Statements of Net Assets Available for Benefits.
7. Income Tax Status
The Puerto Rico Department of the Treasury has determined and informed the Company by letter dated February 24, 2014 and effective January 1, 2011, that the Plan and related trust is designed in accordance with the applicable sections of the Internal Revenue Code for a New Puerto Rico (“IRC”). Subsequent to this determination by the Treasury, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualification. The Plan obtained a letter dated October 8, 2021, in which the Puerto Rico Department of the Treasury ruled that the amendments did not affect the qualified status of the Plan. The Plan Administrator believes that the Plan is designed and currently being operated in compliance with the applicable requirements of the IRC and therefore believes that the Plan is qualified and the related trust is tax-exempt.
Accounting principles generally accepted in the United States of America require Plan management to evaluate uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the taxing authority. There are no uncertain tax positions taken or expected to be taken by the Plan. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by tax jurisdictions; however, there are currently no audits for any tax periods in progress.
8. Subsequent Events
The Company has evaluated all subsequent events from the statement of net assets available for plan benefits date through the date the financial statements were issued and no events were noted which warrant adjustments to, or disclosure in the financial statements.
SUPPLEMENTAL SCHEDULE
EIN: 13-1166910
Plan No: 014