Notes to Financial Statements
Note 1 - Description of the Plan
The following description of the Greif 401(k) Retirement Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the plan document and summary plan description for more information.
General
The Plan is a defined contribution plan covering all employees at adopting locations of Greif Packaging LLC (both the “Sponsor” and the "Administrator"), a wholly-owned subsidiary of Greif, Inc. (the "Company"), and is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"). The Plan was adopted by the Sponsor to provide eligible employees with special incentives for retirement savings. Eligible employees participate as soon as administratively feasible following their date of hire and upon 18 years of age. The Administrator is responsible for keeping accurate and complete records with regard to the Plan, informing participants of changes or amendments to the Plan, and ensuring that the Plan conforms to applicable laws and regulations. Wells Fargo Bank, N.A. and Reliance Trust Company (the “Trustees”) maintain the Plan assets.
Caraustar Industries, Inc. Employees' Savings Plan
Subsequent to the Company's acquisition of Caraustar Industries, Inc. and subsidiaries ("Caraustar") on February 11th, 2019, eligible Caraustar employees remained participants in the Caraustar Industries, Inc. Employees' Savings Plan (the "Caraustar Plan"), a defined contribution plan, through December 31, 2020. During 2020, the Company determined that it was in the best interest of the participants of the Caraustar Plan and the Plan to merge them together effective December 31, 2020 at close of business. As a result of the merger, net assets of $382.8 million were transferred from the Caraustar Plan to the Plan.
Participant Contributions
Participants may contribute up to 100 percent of their annual compensation, not to exceed the deferral limit as established annually by the Internal Revenue Code (the "IRC"), into a choice of investment options. In no event shall the amount contributed for any plan year exceed the amount allowable in computing the participant’s federal income tax exclusion for that plan year. As soon as eligibility criteria are satisfied, participants are automatically enrolled with payroll deductions of 3 percent but are permitted to opt out or change the payroll deduction percentage. Until participants make an investment selection, all of their contributions are invested in a target fund investment option that corresponds to the participant’s projected retirement date, which is based on the participant’s current age and a retirement age of 65. Once the participant makes an investment election, participant contributions are allocated as the participant directs.
Participants may also choose to make rollover contributions (except amounts representing after-tax contributions) to the Plan of amounts received from an eligible employer plan maintained by another company or from an Individual Retirement Account.
Employer Contributions
At its discretion, the Sponsor may make matching and/or profit sharing contributions as set forth in the Plan document. Additionally, the Sponsor contributes three percent of compensation earned for all participants not eligible to participate in the Greif Pension Plan. Certain employer matching contributions are paid pursuant to collective bargaining agreements. The Sponsor’s contributions are allocated to investments in the same manner as that of the participant’s elective contributions.
Participant Accounts
Each participant’s account is credited with the participant’s contributions and the Sponsor’s matching contributions and allocations of plan earnings, and is charged with an allocation of administrative expenses. Plan earnings are allocated based on the participant’s share of net earnings or losses of their respective elected investment options. Allocations of administrative expenses are based on the participant’s account balances, as defined in the Plan document. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Investments
Participants may direct the investment of their contributions and/or account balances into various investment options offered by the Plan and may change investments and transfer amounts between funds daily. The Plan offers 29 mutual funds at registered
investment companies, 16 pooled accounts of common collective trusts, a money market fund, a separate guaranteed interest account, and an employer common stock fund.
Vesting
Participants have full and immediate vesting in all participant contributions and related income credited to their accounts. Employer contributions and actual earnings thereon vest ratably over a five-year period unless otherwise provided by collective bargaining agreements.
Forfeitures
Upon termination of employment, participants forfeit their unvested balances. Beginning August 29, 2018, upon a participant's date of rehire, all years of service credited to such participant's date of termination are taken into account. Previously, prior years of service were only re-credited in certain circumstances as described under the prior terms of the Plan. Forfeited balances of terminated participant’s unvested accounts are used to reduce the administrative expenses of the Plan or future employer contributions.
Notes Receivable from Participants
Participants may borrow from their accounts up to a maximum equal to the lesser of $50,000 or 50 percent of their vested account balance. Loan terms range from 1-5 years, or up to 30 years if for the purchase of a primary residence. The $50,000 limit is reduced by the participant’s highest outstanding loan balance during the preceding 12-month period. A reasonable interest rate will be determined for each loan by the Plan Administrator and is commensurate with prevailing rates at the issuance of loans. As of December 31, 2020, participant loans had maturities through 2050 at interest rates ranging from 3.25 percent to 9.25 percent.
Payment of Benefits
Withdrawals under the Plan are allowed for termination of employment, hardship (as defined by the Plan document), retirement, or the attainment of age 59 1⁄2. Distributions may also be made to the participant in the event of physical or mental disability or to a named beneficiary in the event of the participant’s death. Distributions are made in a lump sum payment or by installment payments at the participant’s election.
Employer Stock Fund
Participants can elect to invest in the employer stock fund consisting of Greif, Inc. Class A Common Stock. The fund may also hold cash or cash equivalents as necessary to satisfy the obligations of the fund. Participants may not allocate more than 20% of their future contributions to the employer stock fund.
Plan Termination
Although it has not expressed any intent to do so, the Sponsor 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.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements of the Plan are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Payment of Benefits
Benefits are recorded upon distribution to participants. There were no participants who elected to withdraw from the Plan, but had not yet been paid at December 31, 2020 and 2019.
Administrative Expenses
All investment management and transaction fees directly related to the Plan investments are paid by the Plan. Management fees and operating expenses charged to the Plan for investments 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. Additional recordkeeping and investment advisory services that are directly attributable to Plan participant’s accounts are charged on a per-participant basis.
Notes Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses was recorded as of December 31, 2020 or 2019. If a participant ceases to make loan repayments and the Plan Administrator deems the participant loan to be a distribution, the participant loan balance is reduced and a benefit payment is recorded.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Plan’s management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plan’s investments are stated at fair value, except for the fully benefit-responsive investment contract, which is reported at contract value. Fair value is defined as 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 (an exit price). See Note 3 for further discussion and disclosures related to fair value measurements. Shares of mutual funds are valued based on quoted market prices which represent the net asset value of shares held by the Plan at year-end. Shares of Greif, Inc. Class A common stock are valued based on quoted market prices which represent the value of shares held by the Plan at year-end. The fair value of the participation units in common collective funds are based on quoted net asset values on the last business day of the Plan’s year-end.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded as earned. Dividends are recorded on the ex-dividend date. Net appreciation includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
Risks and Uncertainties
The Plan provides various investment securities options to its participants. Investment securities are exposed to various risks such as interest rate, market volatility and credit risks. Due to the level of risk associated with certain investment securities, it is 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 net assets available for benefits.
Note 3 - Fair Value Measurements
The framework for measuring fair value 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) and the lowest priority to unobservable inputs (Level 3). Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The three levels of the fair value hierarchy under Topic 820 are described as follows:
Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted in active markets for identical assets or liabilities) that the Plan can access at the measurement date.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as:
•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 by correlation or other means
Level 3 - Inputs that are unobservable inputs for the asset or liability.
The following is a description of the valuation methodologies used for investments measured at fair value. The inputs or methodology to value securities are not necessarily an indication of risk associated with investing in those securities, and there have been no changes in the methodologies used at December 31, 2020 and 2019. Valuation technologies maximize the use of relevant observable inputs and minimize the use of unobservable inputs.
•Common stocks are valued at the closing price reported in the active market on which the individual securities are traded.
•Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-ended mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value and to transact at that price. The mutual funds held by the Plan are deemed to be actively traded.
•Common collective funds are measured at net asset value. The net asset value as provided by the trustees is used as a practical expedient to estimate fair value. The net asset value is based on the fair value of the underlying investments held by the fund less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported net asset value. The use of net asset value is deemed appropriate as the collective funds do not have a finite life, unfunded commitments or significant restrictions on redemptions.
•Money Markets Funds are valued at cost plus accrued interest.
The preceding methods described may produce fair value calculations that may not be indicative of net realizable value or reflective of future fair values. Furthermore, 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.
The following tables set forth by level, within the fair value hierarchy, the Plan’s assets carried at fair value as of December 31, 2020 and 2019, respectively. Classification within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
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Assets at Fair Value as of December 31, 2020
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(in millions)
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Level 1
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Level 2
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Level 3
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Total
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Mutual funds
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$
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432.1
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$
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—
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$
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—
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$
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432.1
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Money market fund (1)
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—
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|
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0.3
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—
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0.3
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Common stocks
|
8.2
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—
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—
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|
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8.2
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Total assets in the fair value hierarchy
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440.3
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0.3
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—
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440.6
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Investments measured at net asset value (2)
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—
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—
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—
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257.4
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Investments at fair value
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$
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440.3
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$
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0.3
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$
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—
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$
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698.0
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Assets at Fair Value as of December 31, 2019
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(in millions)
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Level 1
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Level 2
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Level 3
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Total
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Mutual funds
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$
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284.2
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$
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—
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$
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—
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$
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284.2
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Money market fund (1)
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—
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0.4
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—
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0.4
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Common stocks
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7.8
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—
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—
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|
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7.8
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Total assets in the fair value hierarchy
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292.0
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0.4
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—
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292.4
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Investments measured at net asset value (2)
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—
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—
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—
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37.5
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Investments at fair value
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$
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292.0
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$
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0.4
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$
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—
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$
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329.9
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(1) The money market fund invests in a portfolio of high-quality, short-term debt securities issued by governments, corporations, banks, and other financial institutions. All of the money market fund's investments were valued using Level 2 inputs since the primary inputs include the credit quality of the issuer and short-term interest rates (both of which are observable) in addition to the use of amortized cost.
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(2) In accordance with Accounting Standard Codification 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 represented 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.
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Transfers Between Levels
The availability of observable market data is monitored to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the transfer is reported at the beginning of the reporting period.
We evaluate the significance of transfers between levels based upon the nature of the financial instrument and size of the transfer relative to the total net assets available for benefits. There were no transfers between levels during year 2020 or 2019.
Note 4 - Party-in-Interest Transactions
The Plan holds units in Wells Fargo Stable Return Fund N and Wells Fargo Advantage Heritage Money Market Fund, which are managed by Wells Fargo Bank, N.A.. The Plan also invests in the common stock of Greif, Inc. As part of the merger, described in Note 1 above, the Plan now includes a separate account-guaranteed interest, at contract value, valued at $47.5 million as of December 31, 2020, which is managed by Mass Mutual. These transactions qualify as party-in-interest transactions; however, they are exempt from the prohibited transactions rules under ERISA.
As of December 31, 2020 and 2019, the Plan owned 771,198 and 583,122 shares of the Wells Fargo Stable Return Fund N with a fair value of $44.7 million and $33.1 million, respectively.
As of December 31, 2020 and 2019, the Wells Fargo Advantage Heritage Money Market Fund had a fair value of $0.3 million and $0.4 million, respectively.
As of December 31, 2020 and 2019, the Plan owned 175,655 and 176,431 shares of the Greif, Inc.’s Class A Common Stock with a fair value of $8.2 million and $7.8 million, respectively. As of December 31, 2020 and 2019, the cost basis of Greif, Inc.’s Class A Common Stock was $7.0 million and $7.6 million, respectively. Dividends earned from Greif, Inc. were $0.3 million for the year ended December 31, 2020.
Note 5 - Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service ("IRS") dated June 26, 2013, stating that the Plan is qualified under Section 401(a) of the IRC and, therefore, the related trust is exempt from taxation. Subsequent to this determination by the IRS, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualified status. The Plan Sponsor believes the Plan is being operated in compliance with the applicable requirements of the IRC and, therefore, believes the Plan, as amended, is qualified and the related trust is tax-exempt.
GAAP requires 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 IRS. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2020 and 2019, there are no uncertain 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 2016.
Note 6 - Reconciliation of Financial Statements to the Form 5500
The following is a reconciliation of amounts per the financial statements at December 31, 2020 and 2019, to the Form 5500:
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(in millions)
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December 31, 2020
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December 31, 2019
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Net assets available for benefits per the financial statements
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$
|
763.7
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$
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340.9
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Less: Participant contributions receivable
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0.3
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|
0.8
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Less: Employer contributions receivable
|
0.9
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|
|
0.5
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Net assets available for benefits per the Form 5500
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$
|
762.5
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|
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$
|
339.6
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|
The following is a reconciliation of employer contributions per the financial statements for the year ended December 31, 2020, to the Form 5500:
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|
|
|
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(in millions)
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December 31, 2020
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Employer contributions per the financial statements
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$
|
12.8
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Less: Employer contributions receivable at December 31, 2020
|
0.9
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Plus: Employer contributions receivable at December 31, 2019
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0.5
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Employer contributions per the Form 5500
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$
|
12.4
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The following is a reconciliation of participant contributions per the financial statements for the year ended December 31, 2020, to the Form 5500:
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(in millions)
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December 31, 2020
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Participant contributions per the financial statements
|
$
|
17.7
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Less: Participant contributions receivable at December 31, 2020
|
0.3
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Plus: Participant contributions receivable at December 31, 2019
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0.8
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Participant contributions per the Form 5500
|
$
|
18.2
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Note 7 - Group Annuity Contract with Mass Mutual
The Plan entered into a benefit-responsive investment contract with Mass Mutual through the Mass Mutual Diversified Separate Account Guaranteed Investment Contract (the “SAGIC”). Mass Mutual maintains the contributions in a separate account. The separate account is credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value. The guaranteed investment contract issuer is contractually obligated to repay the principal and a specified interest rate that is guaranteed to the Plan.
Because the SAGIC is fully benefit-responsive, contract value is the relevant measurement attribute for that portion of the net assets available for benefits attributable to the SAGIC. Contract value, as reported to the Plan by Mass Mutual, represents contributions made under the 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.
There are no reserves against contract value for credit risk of the contract issuer or otherwise. The average crediting interest rate is set quarterly. The SAGIC does not allow the crediting interest rate to fall below zero percent.
Certain events limit the ability of the Plan to transact at contract value with the issuer. Such events include the following:
1.amendments to the Plan documents (including complete or partial Plan termination or merger with another plan);
2.changes to the Plan's prohibition on competing investment options;
3.bankruptcy of the Plan sponsor or other Plan sponsor events (for example, divestitures or spin-offs of a subsidiary); that cause a significant withdrawal from the Plan; or
4.the failure of the trust to qualify for exemption from federal income taxes.
The Plan administrator does not believe that any events which would limit the Plan's ability to transact at contract value with participants are probable of occurring.
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