See accompanying notes.
3
PS 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
1.
Description of the Plan
General
The
PS 401(k) Profit Sharing Plan (the “Plan”) encompasses Public Storage
,
PS Business Parks, Inc. and
certain of
their majority owned subsidiaries (
collectively,
the “Company”).
The following description of the Plan provides only general information. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
The Plan is a defined contribution plan
available
for the benefit of all permanent employees of the Company who have completed at least 30 days of service and are
at least
21 years of age.
The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).
Although it has not expressed the intention to do so, the Company has the right to terminate the Plan subject to ERISA provisions. The Plan allows interim allocations of Company contributions and earnings or losses of trust fund assets among participants.
The Company appoints a committee to administer the Plan. At December 31,
20
13
, the Plan Administrative Committee is comprised of
six
officers of
the Company with
Wells Fargo
Bank
acting as Trustee (the “Trustee”).
Other significant provisions of the Plan are as follows:
Contributions
Employee contributions to the Plan (voluntary contributions) are deferrals of the employee’s compensation made through a direct reduction of compensation in each payrol
l period. During
2013
, each eligible participant could elect a pretax contribution rate from 1% to 100% of their compensation, as defined in the Plan document, subject to the maximum annual elective deferral amount set by the Internal Revenue Code
(the “Code”)
. Participants may also contribute amounts representing distributions from other qualified benefit or defined contribution plans.
The Company contributes one dollar ($1.00) for each dollar deferred by a participant up to three percent (3%) of compensation, as defined and subject to certain limitations as described in the Plan document. The Company also contributes an additional fifty cents ($
0
.50) for each dollar that each participant defers in excess of three percent (3%) of compensation
up to five percent (5%) of compensation
. The Company’s aggregate contributions are limited to four percent (4%) of compensation, as defined and subject to certain limitations as described in the Plan document. Additional amounts may be contributed at the discretion of the Company. No such additional contributions were made in
2013
.
Vesting
Since January 1, 2005
,
employee deferrals and the Company’s
safe harbor
matching contribution are 100% vested and non-forfeitable.
Investment Options
Since
January 1,
2013
, upon enrollment in the Plan, a participant may direct their contributions and holdings in any of the following investment options:
PS 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
|
|
1.
|
Dodge & Cox International Stock Fund
|
2.
|
American Funds EuroPacific Growth Fund/R
6
|
3.
|
Oakmark Equity & Income I Fund
|
4.
|
Oakmark
Select
I Fund
|
5.
|
PIMCO Total Return Institutional Fund
|
6.
|
Harbor Capital Appreciation
I Fund
|
7.
|
Columbia Acorn
Fund
|
8.
|
T. Rowe Price Equity Income Fund
|
9.
|
T. Rowe Price Real Estate Fund
|
10.
|
Vanguard Explorer Admiral Fund
|
11.
|
Vanguard Short Term Federal Admiral Fund
|
12.
|
Vanguard Windsor II Admiral Fund
|
13.
|
Vanguard
Total Bond Market Index Signal
Fund
|
14.
|
Vanguard
Mid-Cap Index Signal Fund
|
15.
|
Vanguard
Small Cap Index Signal
Fund
|
16.
|
Vanguard
Total International Stock Market Signal
Fund
|
17.
|
Fidelity Contrafund
|
18.
|
Fidelity Low Price Stock Fund
|
19.
|
Wells Fargo Stable Return Fund N
15
|
20.
|
WF/BlackRock S&P 500 Index CIT N5 (formerly
Wells Fargo S&P 500 Index Fund
N5 for
H
igh Balance Plans)
|
21.
|
Individually Directed Account
|
Prior to December 19, 2005, participants had the option to direct contributions to the Company’s securities. Effective December 19, 2005, participants no longer h
ad
that option. Existing holdings of the Company’s securities on December 19, 2005, were either held or transferred to other Plan investment alternatives at the option of each participant (see Note
6
for disclosure of the remaining holdings in the Company’s securities)
.
The
Wells Fargo Stable Return Fund
N15
and the
WF/BlackRock
S&P 500 Index
CIT
N
5
are common/collective trust funds. The Wells Fargo Stable Return Fund
N15
seeks to provide a moderate level of stable income without principal volatility
,
while seeking to maintain adequate liquidity and returns superior to shorter maturity investments.
It
invests in a variety of investment contracts and instruments issued by selected high-quality insurance companies and financial institutions.
Participant-directed redemptions have no restrictions; however, the Plan is required to provide a one-year redemption notice to liquidate its entire share in the fund.
The
WF/BlackRock
S&P 500 Index
CIT
N5
is an index fund that invests in the equity securities of companies that comprise the
S&P 500 I
ndex
(the “Index”) and
seeks to approximate as closely as practicable the total return, before deduction of
fees and expenses, of the Index.
The
WF/BlackRock
S&P 500 Index
CIT
N5
has no redemption restrictions.
See “Investment Valuation and Income Recognition” in Note 2 below for further information regarding common collective trusts.
The Individually Direct
ed
Account is considered a self-directed
brokerage account
which
allows participants access to a broader range of investment choices than that which is offered through the Plan’s
menu.
Participants with Individually Directed A
ccounts remain able to acquire and dispose of the Company’s securities at their discretion.
At
December 31,
2013
, the Individually Directed Accounts were primarily invested in money market funds
and common equity securities of publicly-traded companies, including those of the Company.
Distributions from the
Plan
Distributions of each participant's vested account balance upon severance or death are made in a single lump sum payment; however, upon severance if the participant’s vested account balance exceeds
PS 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
$5,000, payment may be deferred at the election of the participant until April 1
st
of the calendar year in which the participant reaches 70 ½ years of age.
Additionally, the Plan provides for hardship distributions (as defined).
Generally, distributions are made no later than 60 days after the close of the Plan year in which the participant becomes eligible for such distributions.
Forfeited Accounts
Forfeitures of profit sharing contributions may be used (i) as a non-elective allocation to all eligible Plan participants, (ii) to reduce the Company’s safe harbor matching contribution or (iii) to reduce Plan expenses in the current Plan year or within one year following the end of the current Plan year.
During
201
3
, a total of $
22,
000 in non-vested amounts was forfeited
from prior Plan years
,
all
of which w
ere
applied to
Plan administrative expenses for eligible Plan participants
in
2013
.
Also during
201
3
, forfeitures of profit sharing contributions totaling $
47
,000 that were forfeited during
201
2
were used to reduce Plan administrative expenses for eligible Plan participants.
As of December 31, 2013, there were no remaining non-vested forfei
ted
amounts
in the Plan.
|
2.
|
|
Summary of Significant Accounting Principles
|
Basis of Accounting
The accompanying financial statements of the Plan have been prepared on the accrual basis of accounting and are in conformity with U.S. generally accepted accounting principles.
Use of
Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires
management
to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service
(“IRS”)
dated April 3, 2012, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the "Code") and, therefore, the related trust is exempt from taxation.
Subsequent to the issuance of the determination letter, the plan has been amended.
Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification.
The
P
lan administrator
believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes the Plan is qualified and the related trust is tax exempt.
U.S. generally accepted a
ccounting
principles require
P
lan
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
P
lan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31,
201
3
, 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
P
lan administrator believes it is no longer subject to income tax examinations for years
prior to
20
10
.
Investment Valuation and Income Recognition
The Plan’s investments
in Company
equity securities
,
mutual funds
, and
the
self-directed brokerage account investments
are recorded at fair value as determined by the quoted market price on the last
PS 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
business day of the plan year.
Common
collective trusts are recorded at fair value based on the
net asset value of the investment
reported by the Trustee
.
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 payment date.
The common collective trusts that invest in fully benefit-responsive investment contracts
is
recorded at fair value; however, since these contracts are fully benefit-responsive, an adjustment is reflected in the statements of net assets available for benefits to present
th
is
investment at contract value.
Contract value is the relevant measurement 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 the Plan.
The contract value represents contributions plus earnings, less participant withdrawals and administrative expenses.
3.
Investments
Wells Fargo
Bank has custody of the
Plan’s
investments under a non-discretionary trust agreement with the Plan.
The following presents the fair value of investments at December 31,
2013
and
2012
that represent five percent (5%) or more of the Plan’s net assets available for benefits:
|
|
|
|
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
Wells Fargo Stable Return Fund
|
$
|
9,808,739
|
|
$
|
10,004,992
|
WF/BlackRock S&P 500 Index
|
|
8,506,664
|
|
|
6,320,126
|
Oakmark Equity & Income I
|
|
16,893,482
|
|
|
13,230,925
|
Harbor Capital Appreciation Institutional
|
|
10,484,002
|
|
|
8,135,300
|
PIMCO Total Return Institutional
|
|
*
|
|
|
4,948,573
|
Vanguard Windsor II Fund Admiral
|
|
7,179,873
|
|
|
5,822,570
|
Public Storage common shares
|
|
14,983,062
|
|
|
15,077,435
|
* Investment
was less than 5% of the Plan’s net assets available for benefits at December 31,
201
3
.
During
2013
, the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year)
appreciated
in value as follows:
|
|
|
|
2013
|
Mutual funds
|
$
|
13,290,668
|
Common and preferred securities
|
|
3,901,129
|
|
|
|
Total
|
$
|
17,191,797
|
|
|
|
|
4.
|
|
Fair Value Measurements
|
ASC 820
defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.
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 (i.e. an exit price).
ASC 820
includes 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 and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy are described below:
PS 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
Level 1 –
Valuation is based on quoted prices in active markets for identical securities.
Level 2 –
Valuation is based upon other significant
observable inputs
.
Level 3 –
Valuation is based upon significant u
nobservable inputs (i.e., supported by little or no market activity).
Level 3 inputs include
the Company
’s own assumption about the assumptions that market participants would use in pricing the
securities
(including assumptions about risk).
The level in the fair value hierarchy within which the fair value measurement is classified is determined based
on
the lowest level input that is significant to the fair value measure in its entirety.
The following table
s
sets forth by level, within the fair value hierarchy, the Plan’s assets carried at fair value as of December 31,
20
13
and
2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2013
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Company common and preferred stock
|
$
|
15,920,006
|
|
$
|
-
|
|
$
|
-
|
|
$
|
15,920,006
|
Common/collective trust funds:
|
|
|
|
|
|
|
|
|
|
|
|
Stable value fund
|
|
-
|
|
|
9,808,739
|
|
|
-
|
|
|
9,808,739
|
S&P 500 Index fund
|
|
-
|
|
|
8,506,664
|
|
|
-
|
|
|
8,506,664
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
Domestic bind funds
|
|
7,325,500
|
|
|
-
|
|
|
-
|
|
|
7,325,500
|
Domestic equity funds
|
|
36,084,855
|
|
|
-
|
|
|
-
|
|
|
36,084,855
|
International equity funds
|
|
7,401,939
|
|
|
-
|
|
|
-
|
|
|
7,401,939
|
Real estate equity funds
|
|
2,387,106
|
|
|
-
|
|
|
-
|
|
|
2,387,106
|
Blended equity and debt funds
|
|
16,893,482
|
|
|
-
|
|
|
-
|
|
|
16,893,482
|
Money market funds
|
|
1,804,161
|
|
|
-
|
|
|
-
|
|
|
1,804,161
|
Self-directed brokerage accounts -
|
|
|
|
|
|
|
|
|
|
|
|
primarily common stock
|
|
3,555,127
|
|
|
-
|
|
|
-
|
|
|
3,555,127
|
Total asset at fair value
|
$
|
91,372,176
|
|
$
|
18,315,403
|
|
$
|
-
|
|
$
|
109,687,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2012
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Company common and preferred stock
|
$
|
15,882,221
|
|
$
|
-
|
|
$
|
-
|
|
$
|
15,882,221
|
Common/collective trust funds:
|
|
|
|
|
|
|
|
|
|
|
|
Stable value fund
|
|
-
|
|
|
10,004,992
|
|
|
-
|
|
|
10,004,992
|
S&P 500 Index fund
|
|
-
|
|
|
6,320,126
|
|
|
-
|
|
|
6,320,126
|
Mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
Domestic bind funds
|
|
7,963,323
|
|
|
-
|
|
|
-
|
|
|
7,963,323
|
Domestic equity funds
|
|
26,017,569
|
|
|
-
|
|
|
-
|
|
|
26,017,569
|
International equity funds
|
|
6,130,730
|
|
|
-
|
|
|
-
|
|
|
6,130,730
|
Real estate equity funds
|
|
2,732,102
|
|
|
-
|
|
|
-
|
|
|
2,732,102
|
Blended equity and debt funds
|
|
13,230,925
|
|
|
-
|
|
|
-
|
|
|
13,230,925
|
Money market funds
|
|
2,393,732
|
|
|
-
|
|
|
-
|
|
|
2,393,732
|
Self-directed brokerage accounts -
|
|
|
|
|
|
|
|
|
|
|
|
primarily common stock
|
|
1,910,671
|
|
|
-
|
|
|
-
|
|
|
1,910,671
|
Total asset at fair value
|
$
|
76,261,273
|
|
$
|
16,325,118
|
|
$
|
-
|
|
$
|
92,586,391
|
|
|
|
|
|
|
|
|
|
|
|
|
PS 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
5
.
Administration Fees
For the Plan year ended December 31,
2013
, the Plan paid
to the Trustee
a
portion of the
quarterly participant fee of
$
2
.50 per
eligible participant
and
certain transaction related expenses incurred for the administration of the Plan
, totaling
$
104,263
. The Company directly paid for
all other
T
rustee fees and all other expenses related to the Plan.
6
.
Parties-In-Interest
Transactions
Prior to December 19, 2005, participants had the option of directing contributions to the Company’s securities.
Participants with individually directed accounts remain able to acquire and dispose of the Company’s securities at their discretion.
The Company is the Plan sponsor as defined by the Plan document.
While
participants no longer have the option of directing contributions to the Company’s securities
, participants can continue to hold such investments and the Plan held the following shares in the Company’s securities
:
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2013
|
|
At December 31, 2012
|
|
Shares
|
|
Fair value
|
|
Shares
|
|
Fair value
|
Public Storage Common Shares
|
99,542
|
|
$
|
14,983,062
|
|
104,011
|
|
$
|
15,077,435
|
Public Storage Preferred Shares
|
2,766
|
|
|
66,474
|
|
-
|
|
|
-
|
PS Business Parks Common Stock
|
9,138
|
|
|
698,326
|
|
8,926
|
|
|
580,011
|
PS Business Parks Preferred Stock
|
8,834
|
|
|
172,144
|
|
8,991
|
|
|
224,775
|
|
|
|
$
|
15,920,006
|
|
|
|
$
|
15,882,221
|
|
|
|
|
|
|
|
|
|
|
At December 31,
201
3
and
201
2
, Plan participants held $
9,808,739
and $
1
0,004
,
992
, respectively, in
the
Wells Fargo Stable Return Fund N
15
, a common
collective
trust fund that invests in fully-benefit-responsive investment contracts
and is
offered by the Plan’s Trustee
.
At December 31,
2013
and
201
2
,
Plan participants
held $
555,563
and $
407,205
, respectively, in the Wells Fargo Short Term Investment Fund
S (formerly Fund G)
, a money market fund offered by the Plan’s Trustee
.
WF/BlackRock
S&P
500
Index
CIT N5
(formerly
Wells Fargo S&P 500 Index Fund N5 for High Balance Plans
)
is an index fund
offered
by the Plan’s Trustee
that invests in equity securities of companies that comprise the S&P 500 Index. At December 31,
201
3
and
201
2
, Plan
participants held
$
8,506,664
and
$
6
,
320
,
126
, respectively,
in this investment selection.
7
.
Risks and Uncertainties
The Plan
provides for
invest
ment
in various investment
securities
.
Investment securities are exposed to various risks, such as interest rate, market, and credit
risks
. Due to the level of risk associated wit
h certain investment securities,
it is at least reasonably possible that changes in
the values of investment securities will occur in the near
or long
term and that such changes could materially affect participants’ account balances and the amounts reported
in the
financial statements.
8
.
Concentrations
Investments in the Company’s securities comprised
approximately of
15
%
and
17
% of the Plan’s total investments as of December 31,
2013
and
2012
, respectively.