Limitations on the Ability of the Fund to Transact at Contract Value
Restrictions on the Plan
Participant-initiated transactions are those transactions allowed by the Plan, including withdrawals for benefits, loans, or transfers to noncompeting funds within a plan, but excluding withdrawals that are deemed to be caused by the actions of the Plan Sponsor. The following employer-initiated events may limit the ability of the Fund to transact at contract value:
| ● | A failure of the Plan or its trust to qualify for exemption from federal income taxes or any required prohibited transaction exemption under ERISA |
| ● | Any communication given to Plan participants designed to influence a participant not to invest in the Fund or to transfer assets out of the Fund |
| ● | Any transfer of assets from the Fund directly into a competing investment option |
| ● | The establishment of a defined contribution plan that competes with the Plan for employee contributions |
| ● | Complete or partial termination of the Plan or its merger with another plan |
Circumstances That Affect the Fund
The Fund invests in assets, typically fixed income securities or bond funds, and enters into “wrapper” contracts issued by third parties. A wrap contract is an agreement by another party, such as a bank or insurance company, to make payments to the Fund in certain circumstances. Wrap contracts are designed to allow a stable value portfolio to maintain a constant NAV and protect a portfolio in extreme circumstances. In a typical wrap contract, the wrap issuer agrees to pay a portfolio the difference between the contract value and the market value of the underlying assets once the market value has been totally exhausted.
The wrap contracts generally contain provisions that limit the ability of the Fund to transact at contract value upon the occurrence of certain events. These events include:
| ● | Any substantive modification of the Fund or the administration of the Fund that is not consented to by the wrap issuer |
| ● | Any change in law, regulation, or administrative ruling applicable to a plan that could have a material adverse effect on the Fund’s cash flow |
| ● | Employer-initiated transactions by participating plans as described above |
In the event that wrap contracts fail to perform as intended, the Fund’s NAV may decline if the market value of its assets declines. The Fund’s ability to receive amounts due pursuant to these wrap contracts is dependent on the third-party issuer’s ability to meet their financial obligations. The wrap issuer’s ability to meet its contractual obligations under the wrap contracts may be affected by future economic and regulatory developments.
The Fund is unlikely to maintain a stable NAV if, for any reason, it cannot obtain or maintain wrap contracts covering all of its underlying assets. This could result from the Fund’s inability to promptly find a replacement wrap contract following termination of a wrap contract. Wrap contracts are not transferable and have no trading market. There are a limited number of wrap issuers. The Fund may lose the benefit of wrap contracts on any portion of its assets in default in excess of a certain percentage of portfolio assets.
(5) EXEMPT PARTY-IN-INTEREST TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by Fidelity. Fidelity is the trustee as defined by the Plan and, therefore, these transactions qualify as exempt party-in-interest transactions. Fees paid to Fidelity by Plan participants for investment management and various other transaction-related services were $782,857 and $912,820 for the years ended December 31, 2022 and 2021, respectively.
At December 31, 2022 and 2021, the Plan held 124,234 and 129,056 shares, respectively, of common stock of the Company, with a cost basis of $11,232,382 and $10,999,756, respectively. During the years ended December 31, 2022 and 2021, the Plan recorded dividend income from the Company of $275,174 and $262,353, respectively.