NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2012 AND 2011
1.
|
DESCRIPTION OF THE PLAN
|
The following description of The Standard 401(k) Plan (the Plan) provides only general information. Participants should refer to the Summary Plan Description and may request a copy
of the Plan document from the Plan sponsor for more detailed information.
General
The Plan
is a voluntary deferred compensation plan under Section 401(k) of the Internal Revenue Code (the Code). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Plan
sponsor is Standard Insurance Company (Standard), and the Plan record keeper and administrative service provider is Standard Retirement Services, Inc. (Standard Retirement Services). Both Standard and Standard Retirement
Services are wholly owned subsidiaries of StanCorp Financial Group, Inc. (StanCorp). The Plan trustees control and manage the operation of the Plan.
Eligibility
Effective January 1, 2007, all new employees of StanCorp and its subsidiaries, except
leased employees, union employees, interns and individuals not eligible based on written agreement, enter the Plan on the date of hire.
Participants are eligible for a matching contribution following the date of hire. Employees hired January 1, 2003 or after, are also eligible for a non-elective contribution starting January 1
following the date of hire. Eligible employees are not required to contribute to the Plan to receive this non-elective contribution. Employees hired prior to January 1, 2003 are not eligible for this non-elective contribution due to their
participation in the Standard defined benefit plan.
Contributions
Participants may elect
to make traditional contributions (pre-tax) or Roth contributions (after-tax).
Each year, participants may
contribute a percentage of eligible compensation to the Plan, ranging between 3% and the maximum percentage legally permissible, which is determined by the Code.
Presently Standard matches 100% of the first 3% of eligible compensation that a participant contributes to the Plan and
50% of the next 2% of eligible compensation that a participant contributes to the Plan. The non-elective contribution is 2% of eligible compensation for the first five years and increases by one percentage point for each additional five years of
service by an eligible participant to a maximum of 6%.
Upon enrollment in the Plan, participants may direct
their contributions and the employer contributions in 1% increments to a number of funds that are administered and maintained by Standard. The Plan offers 22 pooled separate account investments, the Portfolio Fund and Employer Stock as investment
options for participants. Participants may change or transfer their investment options daily, subject to fund trading restrictions.
Each participants account is credited with the participants contributions, an allocation of Standards matching contributions, the non-elective contribution, if applicable, and net
investment earnings/losses.
4
Vesting
Participants are immediately fully vested in both
their elective contributions and Standards matching contributions. Eligible participants are fully vested in the non-elective contributions after three years of service or upon reaching normal retirement age while employed. Non-vested
non-elective contributions are forfeited when participants take a distribution upon termination of employment or when participants terminate employment and have a subsequent consecutive five-year break in service. Forfeited contributions are used to
pay Plan expenses and to offset future employer contributions. During the years ended December 31, 2012 and 2011, employer contributions were reduced for forfeited non-vested accounts by zero and $160,105, respectively.
Termination of Employment
Upon termination of service, a participant may leave
funds in the Plan if the participants account balance is greater than $1,000, may request a direct rollover into an IRA or to another eligible plan that accepts direct rollovers or may request a distribution of the participants account
balance. See Withdrawals and Distributions. Funds remaining in the Plan continue as tax deferred and are invested at the participants direction until federal law requires a distribution after age 70
1
/
2
.
Withdrawals and Distributions
Upon
termination of service, a participant may elect to receive benefits in a lump sum, in quarterly partial distributions or in payments from the participants account until the vested account balance is exhausted. Distributions are made as soon as
administratively possible to electing employees who terminate or retire, or to the beneficiaries of deceased participants. Withdrawals also may be made in the case of hardship or certain other circumstances as described in the Plan.
Notes Receivable from Participants
Loans may be made to participants for up to the lesser of 50% of
their vested account balance or $50,000 as defined in the Plan. Loans are secured by the participants account balance and bear interest at rates commensurate with prevailing rates at the time funds are borrowed. Principal and interest are paid
through payroll deductions.
Termination of the Plan
Although it has not expressed any
intent to do so, Standard has the right under the Plan to discontinue its contributions at any time and to terminate the Plan. In the event of Plan termination, participants would become fully vested in all benefits earned to that date and Plan
assets would be available for distribution to participants. Distributions to each participant at termination would be based on the value of that participants account.
Administrative Expenses
Administrative expenses are paid by Standard with the exception of an
asset-based fee, a loan initiation fee and a lump sum distribution fee. The asset-based fee is 0.05% of participants account balances and is reduced by any revenue received from providers of the underlying mutual funds.
Employer Stock Limitation
Under the Plan, only 20% of any participant or beneficiarys account
balance may be invested in Employer Stock.
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The following is a summary of significant accounting policies followed in preparation of the Plans financial
statements.
Basis of Accounting
The accompanying financial statements have been prepared
in accordance with accounting principles generally accepted in the United States of America (GAAP).
5
Use of Estimates
Plan management is required to make
estimates and assumptions that affect reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements and the reported amounts of additions and deductions during the reporting
periods. Actual results could differ from those estimates.
Risks and Uncertainties
The
Plan invests in various securities and insurance contracts including pooled separate account investments, the Portfolio Fund and Employer Stock. These investments, in general, are exposed to various risks, such as interest rate, credit 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 could occur in the near term, and such changes could materially affect the
amounts reported in the statements of net assets available for benefits.
Concentration of
Risks
The Plans assets consist primarily of financial instruments including investments in pooled separate accounts, the Portfolio Fund and Employer Stock. The financial instruments may subject the Plan to concentrations of risk.
The contract value of the Portfolio Fund is dependent on the ability of Standard to honor its contractual commitments as the issuer. Investments in pooled separate accounts and Employer Stock are subject to changes in the market values of the
underlying securities.
Investment Valuation and Income Recognition
The Plans
investments in pooled separate accounts and Employer Stock are measured at fair value on a recurring basis. The Plan is either credited or charged for the change in unit values of its pooled separate account and Employer Stock investments. See
Note 7Fair Value for the valuation of the pooled separate accounts and Employer Stock. The Portfolio Fund is comprised of deposit administration contracts with Standard. See Note 5Portfolio FundDeposit
Administration Contracts for the valuation of the Portfolio Fund.
Purchases and sales are recorded on a
trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid balance plus any accrued, but unpaid, interest. Notes receivable from participants are
secured by the vested account balance of the participants receiving the loans and are evidenced by negotiable promissory notes. Notes receivable from participants are subject to substantially level amortization over periods not to exceed five years,
or 10 years if used to purchase a primary residence. Interest is charged based on the prime rate at the time of the loan. Loan payments of participants currently employed by StanCorp are collected every two weeks through payroll deductions.
Loan payments from former employees are due monthly. Interest rates on loans outstanding at December 31, 2012, ranged from 3.25% to 8.25%. Each loan is treated as a directed investment by the participant borrower of Plan assets separate from
any other assets of the Plan. As such, any earnings, gains or losses attributable to the loan will be credited only to the segregated investment fund representing that loan, and will in turn be allocated solely to the participants account.
Payment of Benefits
Benefits are recorded when paid.
Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU) No. 2011-11,
Disclosures about Offsetting Assets and Liabilities
. The main objective of ASU
No. 2011-11 is to enhance disclosures for financial instruments
and derivative instruments that have right of setoff conditions. Under the guidance provided in this ASU, entities will be required to disclose the amount of both the recognized asset and the recognized liability subject to setoff under the same
arrangement.
6
ASU No. 2011-11 became effective for interim and annual periods
beginning on or after January 1, 2013. The Plan does not currently have exposure to hedges, derivatives or master netting arrangements that would be subjected to these additional disclosures. Therefore, the Plan does not expect this ASU to have
a material effect on the Plan financial statements.
In January 2013, the FASB issued ASU No. 2013-01,
Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities
. The main objective of ASU No. 2013-01 is to address the implementation issues and clarify the scope of ASU No. 2011-11 to apply to derivatives, repurchase
agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions offset or subject to a master netting arrangement or similar agreement. This clarification is consistent with the Plans original
interpretation of the ASU and does not change the Plans conclusion on the impact of ASU No. 2011-11.
3.
|
PARTY-IN-INTEREST TRANSACTIONS
|
The assets of the Plan included 188,741 and 202,205 shares of Employer Stock at December 31, 2012 and 2011, respectively, as well as funds on deposit with and investments maintained by Standard.
Because Standard is the Plan sponsor, these investment transactions qualify as party-in-interest transactions.
The following table sets forth the Plans investments that exceeded 5% of net assets available for benefits:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Portfolio Funddeposit administration contracts
|
|
$
|
152,487,179
|
|
|
$
|
144,088,584
|
|
Pooled separate accounts:
|
|
|
|
|
|
|
|
|
T. Rowe Price Mid-Cap Growth
|
|
|
29,859,233
|
|
|
|
21,712,279
|
|
Vanguard Institutional Index
|
|
|
26,669,186
|
|
|
|
23,520,905
|
|
T. Rowe Price Blue Chip Growth
|
|
|
21,565,734
|
|
|
|
17,493,666
|
|
The following table sets forth net appreciation (depreciation) by investment type:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
|
2011
|
|
Pooled separate accounts
|
|
$
|
27,850,079
|
|
|
$
|
(1,995,801
|
)
|
Employer stock
|
|
|
175,271
|
|
|
|
(1,382,143
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,025,350
|
|
|
$
|
(3,377,944
|
)
|
|
|
|
|
|
|
|
|
|
5.
|
PORTFOLIO FUNDDEPOSIT ADMINISTRATION CONTRACTS
|
The Plan invests in the Portfolio Fund, which is comprised of deposit administration contracts with Standard. Standard
maintains the contributions in an unallocated fund, whose assets are invested with other assets in the general account of Standard. The account is credited with earnings on the underlying
7
investments and charged for Plan withdrawals and administrative expenses charged by Standard Retirement Services. The Portfolio Fund is included in the financial statements at contract value,
which approximates fair value, as the contract crediting rate resets annually, and the contracts are fully benefit-responsive. Participants may direct the withdrawal or transfer of all or a portion of their investment at contract value. Contract
value represents contributions made, plus earnings, less withdrawals and administrative expenses. There are no reserves against contract value for credit risk of the contract issuer or otherwise.
Investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract
value is the relevant measurement attribute 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 a plan. The contract crediting rate is established at the beginning of each calendar year and is guaranteed for one year. Because the contract crediting rate is reset
annually at the current portfolio rate basis, the appropriate discount rate used in the calculation of the fair value of the deposit administration contracts equals the contract crediting rate.
The effective annual crediting rate is determined on an annual basis by the Retirement Plans staff and is approved
by StanCorps management committee and Board of Directors. The effective annual crediting rates for the deposit administration contracts ranged from 3.6% to 4.2% for 2012 and 4.1% to 4.7% for 2011.
There are no events that limit the ability of the Plan to withdraw contract value or otherwise transact at contract value
with Standard as the contract issuer. Standard may defer any withdrawal request for 30 days after receipt of written notice of the withdrawal request, and may defer honoring any withdrawal request for any reasonable period if, due to the
closing or other disruption of financial markets or exchanges, Standard is unable to prudently liquidate assets necessary to satisfy the request. A delay caused by market disruption is improbable of occurring.
Standard may terminate the contract with 30 days advance written notice to the contract owner. Upon such notice, the
contract owner may choose immediate payment at contract value or payment in installments over 20 calendar quarters, with interest continuing under the same terms as if the contract remained in force.
The Plan obtained its latest determination letter on April 24, 2012, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements
of the Code. The Plan administrator believes that the Plan is currently designed and operated in compliance with the applicable requirements of the Code. Therefore, the Plan administrator believes that the Plan was qualified, and the related trust
was tax exempt as of the financial statement date. Accordingly, no provision for income taxes has been included in the Plans financial statements.
The Plan administrator has concluded that as of December 31, 2012, there were no uncertain tax positions taken or expected to be taken. The Plan has recognized no interest or penalties related to
uncertain tax positions. 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 the applicable statute of limitations.
8
Assets and liabilities recorded at fair value are disclosed using a three-level hierarchy. The classification of assets and liabilities within the hierarchy is based on whether the inputs to the valuation
methodology used for measurement are observable or unobservable. Observable inputs reflect market-derived or market-based information obtained from independent sources while unobservable inputs reflect our estimates about market data.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad
levels:
|
|
|
Level 1 inputs are based upon quoted prices in active markets for identical assets or liabilities that the Plan can access at the measurement
date;
|
|
|
|
Level 2 inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in
markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market; and
|
|
|
|
Level 3 inputs are generated from model-based techniques that use significant assumptions not observable in the market. These unobservable
assumptions reflect the Plans estimates of assumptions that market participants would use in pricing the asset or liability.
|
When developing fair value measurements, it is the policy of the Plan to use quoted market prices whenever available, or to maximize the use of observable inputs and minimize the use of unobservable
inputs when quoted market prices are not available.
Following are descriptions of the valuation methodologies
used for assets measured at fair value. There have been no changes in valuation methodologies used at December 31, 2012 and 2011.
|
|
|
Employer Stock: Investments in StanCorps common stock are valued at the closing market price on the last day of the year as quoted on the New
York Stock Exchange.
|
|
|
|
Pooled Separate Accounts: Valued at the net asset value of shares held by the Plan at year-end.
|
|
|
|
Portfolio Fund: Valued at the contract value, which approximates fair value.
|
9
The Plan currently has no assets or liabilities measured at fair value on a
nonrecurring basis. The following tables as of December 31, 2012 and 2011, set forth the estimated fair values of assets and liabilities measured and recorded at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled separate accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced
|
|
$
|
7,650,245
|
|
|
$
|
7,650,245
|
|
|
$
|
|
|
|
$
|
|
|
Foreign
|
|
|
26,540,970
|
|
|
|
26,540,970
|
|
|
|
|
|
|
|
|
|
Inflation-protected bond
|
|
|
5,569,949
|
|
|
|
5,569,949
|
|
|
|
|
|
|
|
|
|
Intermediate bond
|
|
|
13,353,064
|
|
|
|
13,353,064
|
|
|
|
|
|
|
|
|
|
Large cap blend
|
|
|
28,812,048
|
|
|
|
28,812,048
|
|
|
|
|
|
|
|
|
|
Large cap growth
|
|
|
30,210,397
|
|
|
|
30,210,397
|
|
|
|
|
|
|
|
|
|
Large cap value
|
|
|
13,909,262
|
|
|
|
13,909,262
|
|
|
|
|
|
|
|
|
|
Lifecycle
|
|
|
2,082,392
|
|
|
|
2,082,392
|
|
|
|
|
|
|
|
|
|
Mid cap blend
|
|
|
17,933,355
|
|
|
|
17,933,355
|
|
|
|
|
|
|
|
|
|
Mid cap growth
|
|
|
29,906,393
|
|
|
|
29,906,393
|
|
|
|
|
|
|
|
|
|
Mid cap value
|
|
|
10,826,308
|
|
|
|
10,826,308
|
|
|
|
|
|
|
|
|
|
Small cap blend
|
|
|
4,760,613
|
|
|
|
4,760,613
|
|
|
|
|
|
|
|
|
|
Small cap growth
|
|
|
8,559,377
|
|
|
|
8,559,377
|
|
|
|
|
|
|
|
|
|
Small cap value
|
|
|
8,739,502
|
|
|
|
8,739,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pooled separate accounts
|
|
|
208,853,875
|
|
|
|
208,853,875
|
|
|
|
|
|
|
|
|
|
Employer stock
|
|
|
7,126,672
|
|
|
|
7,126,672
|
|
|
|
|
|
|
|
|
|
Portfolio Funddeposit administration contracts
|
|
|
152,487,179
|
|
|
|
|
|
|
|
152,487,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
$
|
368,467,726
|
|
|
$
|
215,980,547
|
|
|
$
|
152,487,179
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled separate accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanced
|
|
$
|
6,734,483
|
|
|
$
|
6,734,483
|
|
|
$
|
|
|
|
$
|
|
|
Foreign
|
|
|
21,771,702
|
|
|
|
21,771,702
|
|
|
|
|
|
|
|
|
|
Inflation-protected bond
|
|
|
4,448,213
|
|
|
|
4,448,213
|
|
|
|
|
|
|
|
|
|
Intermediate bond
|
|
|
12,078,693
|
|
|
|
12,078,693
|
|
|
|
|
|
|
|
|
|
Large cap blend
|
|
|
25,362,318
|
|
|
|
25,362,318
|
|
|
|
|
|
|
|
|
|
Large cap growth
|
|
|
24,269,666
|
|
|
|
24,269,666
|
|
|
|
|
|
|
|
|
|
Large cap value
|
|
|
11,630,899
|
|
|
|
11,630,899
|
|
|
|
|
|
|
|
|
|
Lifecycle
|
|
|
1,891,204
|
|
|
|
1,891,204
|
|
|
|
|
|
|
|
|
|
Mid cap blend
|
|
|
15,287,370
|
|
|
|
15,287,370
|
|
|
|
|
|
|
|
|
|
Mid cap growth
|
|
|
27,654,711
|
|
|
|
27,654,711
|
|
|
|
|
|
|
|
|
|
Mid cap value
|
|
|
8,794,905
|
|
|
|
8,794,905
|
|
|
|
|
|
|
|
|
|
Small cap blend
|
|
|
4,710,260
|
|
|
|
4,710,260
|
|
|
|
|
|
|
|
|
|
Small cap growth
|
|
|
7,398,711
|
|
|
|
7,398,711
|
|
|
|
|
|
|
|
|
|
Small cap value
|
|
|
8,376,079
|
|
|
|
8,376,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pooled separate accounts
|
|
|
180,409,214
|
|
|
|
180,409,214
|
|
|
|
|
|
|
|
|
|
Employer stock
|
|
|
7,702,637
|
|
|
|
7,702,637
|
|
|
|
|
|
|
|
|
|
Portfolio Funddeposit administration contracts
|
|
|
144,088,584
|
|
|
|
|
|
|
|
144,088,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
$
|
332,200,435
|
|
|
$
|
188,111,851
|
|
|
$
|
144,088,584
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
There were no transfers into or out of Level 1, Level 2 or
Level 3 for 2012 and 2011.
As a result of inputs used to estimate the fair value of the Portfolio Fund,
Plan management has categorized deposit administration contracts as having Level 2 inputs at December 31, 2012 and 2011. The valuation methods may produce fair value calculations that may not be indicative of net realizable values or
reflective of future fair values. Although the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at the reporting date.
* * * * * *
11