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Page
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3
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Financial Statements
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4
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5
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6 - 14
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16
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Consent of BDO USA, LLP
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December 31, 2019
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December 31, 2018
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|||||||
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ASSETS
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||||||||
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Cash and cash equivalents
|
$
|
3,258
|
$
|
8,932
|
||||
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Investments, at fair value
|
||||||||
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Artesian Resources Corp. Class A non-voting common stock
|
6,160,851
|
6,084,098
|
||||||
|
Collective trust
|
2,334,851
|
2,257,057
|
||||||
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Mutual funds
|
53,901,135
|
42,462,985
|
||||||
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Total investments, at fair value
|
62,396,837
|
50,804,140
|
||||||
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Participants' notes receivable
|
296,724
|
276,145
|
||||||
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Contributions receivable
|
||||||||
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Employer
|
166,214
|
136,906
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||||||
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Participants
|
32,158
|
---
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||||||
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Total contributions receivable
|
198,372
|
136,906
|
||||||
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Total assets
|
62,895,191
|
51,226,123
|
||||||
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NET ASSETS AVAILABLE FOR BENEFITS
|
$
|
62,895,191
|
$
|
51,226,123
|
||||
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See accompanying notes to financial statements.
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||||||||
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ADDITIONS TO NET ASSETS ATTRIBUTED TO:
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||||
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Net investment income
|
||||
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Artesian Resources Corp. Class A non-voting common stock dividends
|
$
|
164,261
|
||
|
Dividend income from other investments
|
1,597,017
|
|||
|
Net appreciation in fair value of investments
|
9,807,987
|
|
||
|
Other income
|
187
|
|||
|
Total net investment income
|
11,569,452
|
|
||
|
Interest income from participants' notes receivable
|
15,259
|
|||
|
Contributions
|
||||
|
Employer contributions
|
1,136,663
|
|||
|
Participant contributions
|
1,845,053
|
|||
|
Rollovers
|
240,779
|
|||
|
Total contributions
|
3,222,495
|
|||
|
Total additions
|
14,807,206
|
|||
|
|
||||
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DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO:
|
||||
|
Participant distributions
|
3,138,138
|
|||
| Total deductions | 3,138,138 | |||
|
|
|
|||
|
NET INCREASE
|
11,669,068
|
|
||
|
|
||||
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NET ASSETS AVAILABLE FOR BENEFITS - BEGINNING OF YEAR
|
51,226,123
|
|||
|
|
||||
|
NET ASSETS AVAILABLE FOR BENEFITS - END OF YEAR
|
$
|
62,895,191
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||
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See accompanying notes to financial statements.
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||||
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1.
|
General
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Effective July 1, 1984, Artesian Resources Corporation (the "Company" or "Plan Sponsor" or "Employer") established the Artesian Resources Corporation Retirement Plan (the "Plan") as a defined contribution
retirement plan for its employees, subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Pursuant to Internal Revenue Code (“IRC”) Section 401(k), the Plan permits employees to exclude
contributions to the Plan from their current taxable income, subject to certain limits. The Plan is administered by an Administrative Committee, which consists of five members appointed by the Company's Board of Directors. PNC Bank,
National Association is a co-fiduciary of the Plan within the meaning of 3(21) of ERISA. Plan administration expenses may be paid out of the Plan unless paid by the Company. The following description of the Plan provides only general
information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions.
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2.
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Participation and Vesting
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|
All employees age 18 and over are eligible for Plan participation immediately after hire. Employees may elect to make tax-deductible contributions up to the IRC limitation, including "catch-up"
contributions for participants age 50 and older. Participants are also able to designate part or all of their contributions as Roth 401(k) contributions, which are made on an after-tax basis. For every dollar an employee contributes up
to 6% of compensation, the Company will provide a 50% matching contribution. In each Plan year, the Company may make discretionary quarterly and annual contributions to the Plan for all employees eligible to participate in the Plan. The
Company made discretionary quarterly contributions to the Plan equal to 2% of quarterly compensation for each of the four quarters of 2019. The total matching, discretionary and service contributions in 2019 were approximately
$548,000, $391,000 and $198,000, respectively.
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The Company's Board of Directors, at its sole discretion, may make a Special Discretionary Stock Contribution to the Plan. A Special Discretionary Stock Contribution was not made for 2019.
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The trust maintains separate accounts for each participant in the Plan. These accounts are credited with the participants' contributions and Plan earnings and may be charged with certain administrative
expenses. Participant contributions, and the related earnings, are fully vested. Company contributions, and the related earnings, vest as follows:
|
||
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Years of Service
|
Vested Percentage
|
||
|
Less than 2
|
0
|
%
|
|
|
2 but less than 3
|
20
|
%
|
|
|
3 but less than 4
|
40
|
%
|
|
|
4 but less than 5
|
60
|
%
|
|
|
5 but less than 6
|
80
|
%
|
|
|
6 years or more
|
100
|
%
|
|
|
Any forfeitures of non-vested contributions maybe off against Company contributions or Plan administration expenses. During 2019 and 2018, forfeited non-vested accounts totaled approximately $13,000 and $32,000, respectively. In 2019, approximately $19,000 was applied
to reduce the Plan sponsor’s contribution obligations.
|
|
2.
|
Participation and Vesting (Continued)
The Company also sponsored another defined contribution plan for its employees, the Supplemental Plan, which was merged into the Plan on March 31, 2000. The contribution and vesting guidelines for the
participants of the Supplemental Plan continued and consist of the following:
|
|
|
·Only employees as of April 26, 1994 are eligible for participation.
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||
|
·A 6% service contribution is made by the Company to the Plan for all eligible participants each quarter based upon each participant’s quarterly
compensation.
|
||
|
·Service contributions and the associated earnings originally vested over a graded period of service, but are now fully vested for all active
participants.
|
|
3.
|
Investment Elections
|
|
|
All future discretionary Company contributions, as well as all prior discretionary contributions and the corresponding earnings, are participant directed.
|
||
|
Participants may allocate basic contributions among the various investments options, including the Company's Class A non-voting common stock.
|
||
|
The Plan has an automatic enrollment feature for newly hired and/or rehired employees to help employees save for retirement by reducing their compensation automatically with an initial pre-tax
contribution of eligible compensation, as defined in the Plan document. The initial pre-tax contribution rate of the automatic enrollment feature is 6%. This amount is deemed as the Participant's Employee Savings Contribution election
if the Participant does not elect to defer a greater or lesser percentage of compensation, or elects to receive cash in lieu of making any Employee Savings Contribution, within 90 days after employment. Any automatic deferral
contributions made and any corresponding matching contributions are placed in a default investment fund as selected by the Administrative Committee, and Participants may modify the investment allocation of these contributions in the
same manner as any other Plan contributions. Employees may elect to opt out from participating in the Plan, or they may elect to defer more or less than the 6% default contribution as well as choose their own investment elections
offered in multiples of 1% with a minimum investment of 1% in any selected investment.
|
|
3.
|
Investment Elections (continued)
|
|
|
The Plan permits an automatic escalation provision on an annual basis, such as each July 1 or January 1, within the discretion of the Administrative Committee, in order to increase employee savings and
other employee contributions. This provision of the Plan would only become effective should the Administrative Committee decide to implement the automatic escalation feature and after notification of the automatic escalation is given to
Participants. However, if implemented, to the extent the participant has opted out of the automatic escalation feature, or has otherwise elected a 0% Employee Savings Contribution, Employee After-Tax Roth 401(k) Contribution or has
otherwise elected a 0% Employee Savings Contribution, such Participant would not be subject to automatic increases in the future. Such Participants would only be subject to automatic escalation in the event that they affirmatively elect
to increase their contributions during any Plan Year, and do not reconfirm their decision to "opt out" of the automatic escalation feature. As of December 31, 2019, the Administrative Committee has not implemented the automatic
escalation feature.
|
||
|
4.
|
Participants' Notes Receivable
|
|
|
Participants may borrow from the Plan under the following guidelines:
|
||
|
·A participant may borrow as much as 50% of his or her vested account balance, subject to certain minimum and maximum limitations as defined
in the Plan.
|
||
|
·Loans are repaid over a period not to exceed five years, unless the loan is to buy, build, or substantially rehabilitate the borrower's
principal residence.
|
||
|
·The participant's account balance is secured as collateral when the loan is executed. If a participant defaults on a loan, the loan is
treated as a distribution from the Plan to the participant.
|
||
|
·Interest rates on loans are prime plus 1% at the date of the loan. Interest rates on outstanding balances ranged from 4.25% to 9.25% as of
December 31, 2019.
|
||
|
·As loans are repaid to the Plan, the total payment, principal plus interest, is credited back to the participant's account.
|
||
|
5.
|
Benefits
|
|
|
Participants are entitled to a benefit payment equal to the vested amount credited to their accounts upon retirement, upon permanent disability, at age 59 ½, in the case of certain financial
hardships outlined in the Plan document, or upon termination of employment or death. In the event of death of a participant, a death benefit payment is made to the participant's beneficiary. The only form of distribution under the Plan
is a single lump sum distribution in cash or stock.
|
||
|
Effective March 1, 2019, the Plan was amended to provide that participants who take hardship distributions shall no longer be precluded from making employee pre-tax salary deferral and employee after-tax
Roth contributions to the Plan for the six month period following receipt of a hardship distribution. For participants who received hardship distributions prior to March 1, 2019, the six month period of suspension was eliminated
effective March 1, 2019.
|
||
| 6. | Plan Termination |
|
| Although it has not expressed the intent to do so, the Company may amend or terminate the Plan. In the event of Plan termination, the accounts of all participants affected shall
become fully vested and non-forfeitable. Assets remaining in the Plan may be immediately distributed to the participants, inactive participants, and beneficiaries in proportion to their respective account balances; or the trust may be
continued with distributions made at such time and in such manner as though the Plan had not been terminated. |
||
|
7.
|
Administrative Expenses
|
|
|
Effective March 1, 2018, administrative expenses are billed as a per participant fee and paid directly by the Employer. Prior to that, certain administrative expenses of the Plan were paid by the
Employer. The Plan could pay for certain member requested services, investment and other fees. Investment fees were allocated to participants' accounts based on a specified basis point per investment through the investments' earnings, a
portion of which was used to reduce administrative expenses of the Plan. The balance of administrative expenses was paid directly by the Employer.
Management fees and operating expenses charged to the Plan for investments in the mutual funds are deducted from income earned on a daily basis and are not separately reflected. Consequently, management
fees and operating expenses are reflected as a reduction of investment return for such investments.
|
|
1.
|
Basis of Accounting
|
|
|
The Plan's financial statements are presented using the accrual method of accounting in conformity with generally accepted accounting principles.
|
||
|
2.
|
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 and
liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and changes therein. Actual results could differ from those estimates.
|
||
|
3.
|
Investment Valuation and Income Recognition
|
|
|
Plan assets held in mutual funds (shares of registered investment companies) and the Company's Class A non-voting common stock are unsecured and are traded on national securities exchanges. Mutual funds
and common stock are valued at quoted market prices at December 31, 2019 and 2018.
|
|
3.
|
Investment Valuation and Income Recognition (continued)
|
|
|
Plan assets held in a common collective trust are unsecured and are valued at net asset value (“NAV”). The collective trust fund represents investments in the PNC Investment Contract Fund and NAV is
determined by PNC, based on the fair value of the underlying securities held by the common collective trust. Investments that calculate NAV per share (or its equivalent), but for which the practical expedient is not applied, are included
in the fair value hierarchy along with the related required disclosures.
|
||
|
In accordance with the policy of stating investments at fair value, net unrealized appreciation (depreciation) for the year is included in the statement of changes in net assets available for benefits and
includes the Plan's gains and losses on investments bought and sold as well as held during the year.
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.
|
||
|
4.
|
Participants' Notes Receivable
|
|
|
Participant loans are classified as participants' notes receivable, and are measured at the unpaid principal balance plus unpaid accrued interest. The Plan classifies loans in default for various events,
including failure to pay timely installments. Defaulted loans are deemed distributed and recorded as benefits paid to participants in the statement of changes in net assets available for benefits. In 2019, no amounts were recorded as
deemed distributions. No allowance for credit losses has been recorded as of December 31, 2019 and December 31, 2018.
|
||
|
5.
|
Benefit Payments and Participant Distributions
|
|
|
Benefit payments to participants are recorded upon distribution.
|
||
|
6.
|
Income Taxes
|
|
|
The Internal Revenue Service has determined and informed the Company by letter dated August 26, 2016 that the Plan plus amendments is qualified and the trust established under the Plan is tax exempt under
the appropriate sections of the Internal Revenue Code. The Plan administrator and the Plan's tax counsel believe that the Plan is designed and being operated in compliance with the applicable requirements of the Internal Revenue Code.
Therefore, no provision for income taxes has been included in the financial statements.
|
||
|
The Plan Sponsor has analyzed the tax positions taken by the Plan and has concluded that, as of December 31, 2019, no uncertain tax positions are
taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, currently no audits are in progress
for any tax periods.
|
||
| 7. | Cash and Cash Equivalents |
|
| Cash and cash equivalents include cash and short-term interest-bearing investments with initial maturities of three months or less. |
|
·
|
Level 1: unadjusted quoted prices in active markets for identical assets or liabilities that the Plan has the ability to access;
|
|
·
|
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices in active markets for similar assets or liabilities, quoted prices for identical or
similar assets or liabilities in non-active markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
|
|
·
|
Level 3: inputs that are unobservable and significant to the fair value measurement.
|
|
Investments at Fair Value as of December 31, 2019
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Mutual Funds
|
$
|
53,901,135
|
$
|
---
|
$
|
---
|
$
|
53,901,135
|
||||||||
|
Artesian Resources Corporation Class A non-voting common stock
|
6,160,851
|
---
|
---
|
6,160,851
|
||||||||||||
|
Total assets in the fair value hierarchy
|
60,061,986
|
---
|
---
|
60,061,986
|
||||||||||||
|
Common collective trust*
|
---
|
---
|
---
|
2,334,851
|
||||||||||||
|
Total investments, at fair value
|
$
|
60,061,986
|
$
|
---
|
$
|
---
|
$
|
62,396,837
|
||||||||
|
Investments at Fair Value as of December 31, 2018
|
||||||||||||||||
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Mutual Funds
|
$
|
42,462,985
|
$
|
---
|
$
|
---
|
$
|
42,462,985
|
||||||||
|
Artesian Resources Corporation Class A non-voting common stock
|
6,084,098
|
---
|
---
|
6,084,098
|
||||||||||||
|
Total assets in the fair value hierarchy
|
48,547,083
|
---
|
---
|
48,547,083
|
||||||||||||
|
Common collective trust*
|
---
|
---
|
---
|
2,257,057
|
||||||||||||
|
Total investments, at fair value
|
$
|
48,547,083
|
$
|
---
|
$
|
---
|
$
|
50,804,140
|
||||||||
|
Amounts allocated to withdrawing participants are reported on the Schedule H of Form 5500 for benefit claims that have been processed and approved for payment prior to December 31, but not yet paid as of
that date.
|
||
|
At December 31, 2019 and 2018, there were no net assets available for plan benefits for distributions to participants who have requested a distribution from the Plan prior to the end of the Plan year.
|
||
|
Artesian Resources Corporation and its employees are parties-in-interest to the Plan. On December 31, 2019 and December 31, 2018, the Plan's assets included $6,160,851 and
$6,084,098, respectively, of Artesian Resources Corporation Class A non-voting stock and $296,724 and $276,145, respectively, of participant notes receivable. Additionally, as of December 31, 2019 and 2018, certain plan investments
totaling $2,334,851 and $2,257,057, respectively, represent investments managed by PNC Advisors or its affiliates. PNC Advisors is the custodian as defined by the Plan and, therefore, these transactions qualify as party-in-interest
transactions. Transactions in these assets are exempt from the prohibited transaction rules.
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
|||||
|
Identity of issuer, borrower, lessor, or similar party
|
Description of investment, including maturity date, rate of interest, collateral, par, or maturity value
|
Cost**
|
Current Value
|
||||||
|
*
|
Common Stock -
|
||||||||
|
Artesian Resources Corporation
|
Class A Non-Voting Common Stock
|
$
|
6,160,851
|
||||||
|
*
|
PNC Stable Value Fund Z
|
Common/Collective Trust
|
2,334,851
|
||||||
|
Mutual Funds -
|
|||||||||
|
American Funds EuroPacific Growth R6
|
Mutual Funds
|
3,671,394
|
|||||||
|
T Rowe Price Growth Stock I
|
Mutual Funds
|
11,749,182
|
|||||||
|
Prudential QMA Mid Cap Value Q
|
Mutual Funds
|
3,070,341
|
|||||||
|
J.P. Morgan Emerging Markets Equity R6
|
Mutual Funds
|
261,869
|
|||||||
|
J.P. Morgan Equity Income R6
|
Mutual Funds
|
6,439,783
|
|||||||
|
J.P. Morgan Mid Cap Growth R6
|
Mutual Funds
|
2,062,957
|
|||||||
|
Vanguard Short-Term Investment-Grade Admiral
|
Mutual Funds
|
767,223
|
|||||||
|
Vanguard Mid Cap Index Admiral
|
Mutual Funds
|
1,051,984
|
|||||||
|
Vanguard Small Cap Index Admiral
|
Mutual Funds
|
1,178,815
|
|||||||
|
Vanguard 500 Index Admiral
|
Mutual Funds
|
7,971,908
|
|||||||
|
American Funds American Balanced R6
|
Mutual Funds
|
2,884,669
|
|||||||
|
American Funds 2010 Target Date Retire R6
|
Mutual Funds
|
528,593
|
|||||||
|
American Funds 2020 Target Date Retire R6
|
Mutual Funds
|
313,649
|
|||||||
|
American Funds 2025 Target Date Retire R6
|
Mutual Funds
|
1,638,908
|
|||||||
|
American Funds 2030 Target Date Retire R6
|
Mutual Funds
|
818,082
|
|||||||
|
American Funds 2035 Target Date Retire R6
|
Mutual Funds
|
1,881,687
|
|||||||
|
American Funds 2040 Target Date Retire R6
|
Mutual Funds
|
44,947
|
|||||||
|
American Funds 2045 Target Date Retire R6
|
Mutual Funds
|
2,069,978
|
|||||||
|
American Funds 2050 Target Date Retire R6
|
Mutual Funds
|
97,439
|
|||||||
|
American Funds 2055 Target Date Retire R6
|
Mutual Funds
|
985,762
|
|||||||
| American Funds 2060 Target Date Retire R6 | Mutual Funds | 14,879 |
|||||||
|
American Century Small Cap Value R6
|
Mutual Funds
|
29,765
|
|||||||
|
Pioneer Bond K
|
Mutual Funds
|
3,559,835
|
|||||||
|
Carillon Eagle Small Cap Growth R6
|
Mutual Funds
|
807,486
|
|||||||
|
Participants' Notes Receivable -
|
|||||||||
|
*
|
Various Participants
|
Interest rates range from 4.25% to 9.25%
|
296,724
|
||||||
|
|
$
|
62,693,561
|
|||||||
|
*
|
Identifies the party as a "Party in Interest" as defined by ERISA.
|
||||||||
|
**
|
Cost information is not required for participant directed investments and is therefore not included.
|
||||||||
|
ARTESIAN RESOURCES CORPORATION RETIREMENT PLAN
|
|||
|
Date: June 25, 2020
|
By:
|
/s/ Jennifer L. Finch
|
|
|
Jennifer L. Finch
|
|||
|
Plan Administrator
|
|||
|
Exhibit No.
|
Description
|
|
Consent of BDO USA, LLP *
|
|
|
*
|
Filed herewith.
|