Use of Estimates
The preparation of financial statements requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements, accompanying notes and supplemental schedule. Actual results could differ from those estimates.
New Accounting Pronouncements
In August of 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). Under ASU 2018-13, specific disclosure requirements related to recurring and nonrecurring fair value measurements were removed, modified and added. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted. ASU 2018-13 requires a retrospective adoption approach for most of the changes, with a few changes requiring a prospective approach. Plan management adopted this guidance with its year ended December 31, 2020, using the appropriate adoption method as previously stated. The adoption of this guidance did not have a material impact on the Plan’s financial condition, as the guidance pertains only to disclosure. See Note 3 for further information concerning the Plan’s fair value disclosures.
NOTE 2. DESCRIPTION OF THE PLAN
General
The following description of the Plan is provided for general information only. Participants should refer to the plan agreement for a complete description of the Plan’s provisions.
The Plan is a defined contribution pension plan providing retirement benefits to substantially all non-union employees of the Company who have attained age 21 and completed one year of employment. The Plan is sponsored by the Company and is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Please refer to the Plan agreement for complete information.
Trust Services
The trustee function of the Plan is performed by T. Rowe Price Company (“T. Rowe Price” or the “Trustee”). As of December 31, 2020 and 2019, the Plan investments were held by the Trustee, in various funds. The Trustee has authority for the purchase and sale of investments and makes payments from the Plan based on participant direction, subject to certain restrictions as specified in the trust agreement, the Plan document and ERISA.
Contributions
Participants may contribute up to 100% of their annual eligible compensation, as defined in the Plan document, to the Plan up to $19.5 thousand and $19 thousand for the years ended December 31, 2020 and 2019, respectively. Participants 50 years of age or older may contribute up to $26 thousand and $25 thousand of their annual eligible compensation, as defined in the Plan document, to the Plan for the years ended December 31, 2020 and 2019, respectively. Eligible team members are automatically enrolled in the Plan after one year of employment and 21 years of age at a contribution rate of 2% of their annual eligible compensation. Eligible team members may choose not to participate by declaring their intentions to do so prior to their initial enrollment date.
Eligible participants may make permitted voluntary rollover contributions to the Plan, subject to Plan requirements.
The Plan provides for a Company match of 100% of the first 2% of each participant’s voluntary contribution and 25% of the next 4% of each participant’s voluntary contribution. A participant generally must be employed on December 31 to receive that year’s Company matching contribution, with the matching contribution funded annually at the beginning of the subsequent year following the year in which the matching contribution was earned. Additionally, the Company may make discretionary profit sharing contributions to the Plan annually, as determined by its Board of Directors, up to a maximum aggregate Company contribution of 25% of the participants’ annual eligible compensation. Participants are eligible for these discretionary contributions after at least 1,000 hours of service in a 12-consecutive month period of employment and generally must be employed on the last day of the plan year. During the years ended December 31, 2020 or 2019, the Company did not make any discretionary contributions to the Plan. Participants can elect to allocate their contributions, as well as the employer contributions, to various equity, bond, fixed income or target date funds, O’Reilly Automotive, Inc. common stock, or a combination thereof.
Vesting
Participants are immediately vested in all voluntary contributions and actual earnings on these contributions. Employer contributions, and earnings on employer contributions, vest based on years of service with the Company at a rate of 20% per year from years two through six and are 100% vested after six years of service. In addition, upon a participant’s death or disability, as defined in the Plan document, all employer contributions, and earnings on employer contributions, become 100% vested.