UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK
PURCHASE, SAVINGS AND SIMILAR PLANS
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
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| ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the fiscal year ended December 31, 2008 |
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| TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
Commission File #001-08506
A. |
| Full title of Plan and the address of the Plan, if different from that of the issuer named below: |
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
B. |
| Name of issuer of the securities held pursuant to the Plan and the address of its principal executive office: |
UNIVERSAL AMERICAN CORP.
SIX INTERNATIONAL DRIVE, SUITE 190, RYE BROOK, NEW YORK 10573
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
December 31, 2008 and 2007 and for the Year Ended December 31, 2008
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F-1 | |
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Statements of Net Assets Available for Benefits as of December 31, 2008 and 2007 | F-2 |
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Statement of Changes in Net Assets Available for Benefits for the Year Ended December 31, 2008 | F-3 |
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F-4 | |
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Supplemental Schedules: |
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Schedule H, Line 4i - Schedule of Assets (Held at End of Year) as of December 31, 2008 | F-13 |
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F-14 | |
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F-15 | |
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EXHIBITS |
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Exhibit 23.1 - Consent of Independent Registered Public Accounting Firm |
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Report of Independent Registered Public Accounting Firm
The Plan Sponsor of
Universal American Corp. 401(k) Savings Plan
We have audited the accompanying statements of net assets available for benefits of Universal American Corp. 401(k) Savings Plan as of December 31, 2008 and 2007, and the related statement of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Plan’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan at December 31, 2008 and 2007, and the changes in its net assets available for benefits for the years then ended, in conformity with U.S. generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedules of assets (held at end of year) as of December 31, 2008, and reportable transactions for the year then ended, are presented for the purpose of additional analysis and are not a required part of the financial statements but are supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan’s management. The supplemental schedules have been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP
New York, New York
June 18, 2009
F-1
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
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| December 31, |
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| 2008 |
| 2007 |
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ASSETS |
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Investments: |
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Registered investment companies |
| $ | 15,959,732 |
| $ | 19,572,043 |
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Employer securities - company stock fund |
| 5,432,847 |
| 10,907,341 |
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Group annuity contract |
| 3,453,960 |
| 2,614,047 |
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Participant loans |
| 768,136 |
| 620,108 |
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Cash and equivalents |
| 324,906 |
| 262,130 |
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Total investments, at fair value |
| 25,939,581 |
| 33,975,669 |
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Net assets available for benefits |
| $ | 25,939,581 |
| $ | 33,975,669 |
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See accompanying notes to financial statements.
F-2
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2008
Additions |
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Investment income: |
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Interest income on group annuity contract |
| $ | 104,793 |
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Interest income on participant loans |
| 53,003 |
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Other investment income |
| 9,300 |
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Subtotal |
| 167,096 |
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Contributions: |
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Employer contributions |
| 2,129,725 |
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Participant contributions |
| 5,199,394 |
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Participant rollovers |
| 406,103 |
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Total contributions |
| 7,735,222 |
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Net transfers |
| 1,958,462 |
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Total additions |
| 9,860,780 |
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Deductions |
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Net depreciation in fair value of investments: |
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Registered investment companies |
| (8,441,762 | ) | |
Employer securities - company stock fund |
| (7,240,823 | ) | |
Subtotal |
| (15,682,585 | ) | |
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Benefits paid to participants |
| (2,205,615 | ) | |
Administrative expenses |
| (8,668 | ) | |
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Total deductions |
| (17,896,868 | ) | |
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Net decrease |
| (8,036,088 | ) | |
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Net assets available for benefits: |
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Beginning of year |
| 33,975,669 |
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End of year |
| $ | 25,939,581 |
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See accompanying notes to financial statements.
F-3
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
December 31, 2008
NOTE 1 - DESCRIPTION OF PLAN
Effective April 1, 1992, Universal American Corp. (hereafter called the “Company”) adopted the Universal American Corp. 401(k) Savings Plan (hereafter called the “Plan”), which is a voluntary defined contribution plan under which employees may elect to defer income from taxation under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “Code”). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Plan description below provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
Plan Administration
The Company is the Administrator for the Plan and has appointed State Street Bank and Trust as Plan Trustee. The Administrator is the named fiduciary that is responsible for execution of the Plan’s provisions, construction, required record keeping, directing and advising the Plan Trustee regarding investment and payment procedures. The Administrator is also responsible for claims management and exercising such authority and responsibility as they deem appropriate to comply with ERISA and government regulations. The Company has contracted with Diversified Investment Advisors for recordkeeping services for the Plan. State Street Bank and Trust is the custodian for the Plan’s assets.
Administrative Costs
Permitted administrative expenses are paid by the Plan. The Company pays all other costs of operating the Plan.
Plan Changes
During 2008, there were changes to the terms of the Plan relating to investment options as follows:
Investment options - The American Century Vista Adv Fund, the American Funds Fundamental Invs R3 Fund, the BlackRock Global Financial Svcs Inv A Fund, the Janus Adviser Balanced S Fund, and the Jennison Natural Resources A Fund were added. The AIM Dynamics Fund and the Oppenheimer Quest Balance Fund were removed as investment options.
Transfers Into the Plan
On September 21, 2007, the Company acquired MemberHealth, Inc. (“MemberHealth LLC”). Effective January 1, 2008, the assets of the MemberHealth, Inc. 401 (k) / Roth Profit Sharing Plan, sponsored by MemberHealth and administered by TransAmerica, were merged with and into the Universal American Corp. 401 (k) Savings Plan. The fair value of the net assets at the date of merger were $1,958,462. This merger did not reduce or eliminate any protected benefits under Section 411 (d) of the Code, nor lessen the rights of any participant with respect to those benefits credited to the participant prior to the date of the merger.
Participation in the Plan
Any employee who has completed 250 hours within three months of service and has attained age 21 (attained age 18 for those participants added to the plan in 2007 related to the Plan’s merger with the Heritage Health Systems, Inc. 401 (k) Profit Sharing Plan, effective July 1, 2007) shall be eligible to participate in the Plan. Employees are eligible to participate on the first day of the Plan quarter following the date the employee has met the eligibility requirements. Non-resident employees who receive no earned income from Company sources within the United States are not eligible to participate in the Plan. An employee ceases to be a participant if they cease employment for any reason (including death or retirement), or if the Company ceases to exist. If a person no longer meets the requirements for participation while they are an employee, they
F-4
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
shall remain a participant but shall not be entitled to a share of any Company contributions, and may not make elective contributions until Plan requirements are met.
Contributions
Eligible employees may contribute to the Plan, through payroll deductions, up to 100% of their eligible compensation to a variety of funds, including the Company’s common stock fund. The maximum contribution allowed for 2008 was $15,500. Employees who are fifty years or older were also allowed to make an additional $5,000 catch-up contribution. Employees may also contribute distributions from any tax qualified plan under Code Section 401(a), or from any other plans from which distributions are eligible to be rolled over into this Plan pursuant to the Code.
The Company may match participants’ contributions with employer contributions to the Company’s common stock fund. Beginning on January 1, 2004, the matching contribution was revised to be equal to 100% of the first 1% of eligible salary contributed to the Plan by the participant and 50% of each of the next 2% of eligible salary contributed to the Plan by the participant (contributions of greater than 1% up to 3%). In addition, the Administrator approved a supplemental Company matching contribution, beginning in 2004 and continuing to 2008, equal to a maximum of 50% of each of the next 3% of eligible salary contributed to the Plan by the participant (contributions of greater than 3% up to 5%). The percentage for both the Company match and the supplemental Company match may be adjusted or discontinued as of a valuation date that is thirty (30) days after written notice of the change has been furnished to participants’. The Company matching contribution is summarized as follows:
Participant |
| Company |
| Maximum |
| Supplemental |
| Total |
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1.0% |
| 100% |
| 1.0% |
| —% |
| 1.0% |
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2.0% |
| 75% |
| 1.5% |
| —% |
| 1.5% |
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3.0% |
| 67% |
| 2.0% |
| —% |
| 2.0% |
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4.0% |
| N/A |
| 2.0% |
| 0.5% |
| 2.5% |
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5.0% |
| N/A |
| 2.0% |
| 1.0% |
| 3.0% |
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Over 5.0% |
| N/A |
| 2.0% |
| 1.0% |
| 3.0% |
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* Expressed as a percentage of the participant’s eligible salary.
† Expressed as a percentage of the Participant’s contribution.
Participant and employer matching contributions are recorded in the period during which the Company remits payroll deductions from participants’ compensation.
Participant Accounts
Each participant’s account is credited with the participant’s contribution and allocation of the Company’s contribution and Plan earnings, and is charged with Plan losses and an allocation of administrative expenses. Allocations are based on participant account balances, or earnings, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account. The participants’ account balances that are reflected in the total asset value of the Plan are not the same as the total participants vested benefits, as all participants are not fully vested.
Vesting
The entire interest of a participant in their elective contribution account and qualified non-elective contribution accounts is 100% vested at all times. The interest of a participant in their discretionary and matching contributions accounts vest 25% after two years and 25% more per year thereafter, with 100% vesting after five years of service (MemberHealth merged participants vest over 5 years, graded, based on date of hire and Heritage merged participants vest over either 3 or 4 years, graded, based on date of hire). Additionally, the entire interest of a participant in their discretionary and matching contributions accounts shall become 100% vested upon the occurrence of any of the following events: the cessation of participation due to retirement, death, attainment of age 65, or termination of the Plan. Upon full or partial termination of the Plan, or trust, or the final dissolution and liquidation of the Company, to the extent terminated, the interest in the Plan of each affected participant shall become fully vested. If a person ceases to be a participant for any reason, and their entire interest in their discretionary and matching contribution accounts has not become fully vested, the non-vested portion of these accounts are forfeited.
F-5
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
Investment Options
Amounts credited to participants’ accounts under the Plan are invested by the employer-appointed investment committee. Upon enrollment in the Plan, a participant may direct employee contributions in any of the various investment options. These options consist of various equity investments (funds) and the Company’s common stock, a qualifying employer security.
The participant may elect, on not more frequently than any valuation date, to have all or any portion of his vested interest in any investment fund(s) transferred to any other investment fund(s).
Participant Loans
The Administrator may permit a participant to borrow from the Plan an amount equal to between $1,000 and generally 50% of the value of their vested interest, but they may not borrow, in the aggregate, an amount greater than $50,000, reduced by the highest outstanding balance on loans to the participant during the twelve month period preceding the date a new loan is to be made. The loan shall bear a reasonable rate of interest, be adequately secured and must be repaid within five years, unless the loan is used to acquire a dwelling unit. The participant must direct the Company to withhold from each payment and pay to the Plan an amount sufficient to repay the loan over its term. If a loan is in default, the Administrator may treat the unpaid amount as a distribution to the participant from the Plan. A participant may not apply for a loan while they have another loan outstanding.
As of December 31, 2008 and 2007, participants had outstanding loan balances totaling $768,136 and $620,108, respectively. These loans have various maturity dates, with interest rates ranging from 5.0% to 9.7%.
Payment of Benefits
Unless the participant otherwise elects, they normally shall start to receive benefits not later than the 60th day after the close of the Plan year in which the latest of the following occurs:
a.) participant’s attainment of age 65;
b.) participant’s attainment of their tenth year in the Plan;
c.) termination of participant’s employment.
Benefits are generally payable in a lump sum. Participants generally will have their entire balance distributed no later than April 1 following the calendar year in which they attain age 70 ½, or if later, in the year in which they retire. In cases of hardship, the participant may have a portion of their vested interest distributed to them. Upon attainment of age 59 ½, they may elect in writing to receive a single sum of their entire interest while continuing to stay in the Plan. If a participant dies, their beneficiary shall be paid a lump sum amount. If they elect to not receive a distribution of their vested interest as of the date they cease to be a participant, any amount of their Company contribution account in excess of their vested interest shall be forfeited. The participant may elect to have any portion of their benefits directly transferred to an eligible retirement plan.
Forfeited Accounts
Forfeited non-vested accounts totaled $321,850 at December 31, 2008 and $261,373 at December 31, 2007. These accounts will be used to reduce future employer contributions. During the year ended December 31, 2008, employer contributions were reduced by $55,963 from forfeitures.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the Department of Labor Rules and Regulations for Reporting and Disclosure under ERISA.
F-6
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
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 certain amounts reported in the financial statements and accompanying notes. Accordingly, actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plan invests in various investment securities, including registered investment companies, company stock and investment contracts. Investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities, it is possible that changes in the values of investment securities may 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.
The Plan’s investments are stated at fair value. Shares of registered investment companies are valued at quoted market prices determined on an active market which represent the net asset value of shares held by the Plan at year end. The Universal American Corp. Company Stock Fund is valued at net asset value which is based on the quoted market price of Universal American Corp. common stock determined on an active market. The Plan’s investment in group annuity contract is valued at contract value, which approximates fair value. Participant loans are valued at their outstanding balance, which approximates fair value.
As described in Financial Accounting Standards Board Staff Position (FSP) AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the FSP), investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan 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 Plan has entered into traditional group annuity contract primarily with insurance carriers. This contract, which is included in the Transamerica Stable Value Fund (The Fund), is fully benefit-responsive and is included in the financial statements at contract value, which approximates fair value. Fully benefit-responsive contracts provide for a stated return on principal invested over a specified period and permit withdrawals at contract value for benefit payments, loans, or transfers. Contract value represents contributions made under the contract, plus earnings, less Plan withdrawals and administrative expenses. The Fund has no stated maturity date.
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.
Payment of Benefits
Benefit payments to participants are recorded upon distribution.
Recently Adopted Accounting Standards
On January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” issued in September 2006. The Plan’s financial assets carried at fair value have been classified, for disclosure purposes, based on a hierarchy defined by SFAS No. 157, Fair Value Measurements. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset’s or a liability’s classification is based on the lowest level input that is significant to its measurement. See Note 7 for further information related to SFAS No. 157.
F-7
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 3 - PLAN AMENDMENT AND TERMINATION
Although it has not expressed any intent to do so, the Company has the right to terminate or partially terminate the Plan, subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. The Company also has the right or obligation to amend the Plan; various amendments have been made subsequent to the original Plan filing date.
NOTE 4 - INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service dated October 29, 2004, 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 this determination by the Internal Revenue Service, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The plan administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan, as amended, is qualified and the related trust is tax exempt.
NOTE 5 - CONTRIBUTION INCOME
Employee contributions during 2008 totaled $5,605,497 and originated from the participants’ salary deferral contributions of $5,199,394 and from participants’ rollover contributions of $406,103.
Employer contributions during 2008 amounted to $2,129,725. All of the Employer contributions are deposited to the Universal American Corp. - Company stock fund. Participants cannot direct the investment alternatives for the Employer contributions until they are vested.
F-8
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 6 - INVESTMENTS
The following schedule of Plan assets presents investments at December 31, 2008 and 2007:
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| December 31, 2008 |
| December 31, 2007 |
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Description |
| Units |
| Per Unit |
| Value |
| Value |
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Employer Securities |
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Universal American Corp. - Company Stock Fund |
| 610,130.582 |
| $ | 8.904 |
| $ | 5,433 | * | $ | 10,907 | * |
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Group Annuity Contract |
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Transamerica Stable Value Fund |
| 205,944.969 |
| 16.771 |
| 3,454 | * | 2,614 | * | |||
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Registered Investment Companies |
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Franklin Micro Cap Value Fund |
| 48,236.660 |
| 21.280 |
| 1,027 |
| 1,505 |
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Transamerica Premier Equity Fund |
| 82,335.837 |
| 13.900 |
| 1,144 |
| 2,104 | * | |||
Transamerica Premier Diversified Equity Fund |
| 62,583.130 |
| 9.820 |
| 615 |
| 894 |
| |||
Fidelity Advisor Mid Cap Fund |
| 43,046.917 |
| 11.170 |
| 481 |
| 922 |
| |||
Loomis Sayles Bond Fund |
| 51,349.952 |
| 10.330 |
| 530 |
| 430 |
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Oppenheimer Quest Balanced Fund |
| — |
| — |
| — |
| 1,119 |
| |||
Wells Fargo Advantage Government Securities Fund |
| 106,823.421 |
| 10.790 |
| 1,153 |
| 1,071 |
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Wells Fargo Advantage Small Cap Value Fund |
| 17,734.438 |
| 17.880 |
| 317 |
| 347 |
| |||
American Funds-Growth Fund of America |
| 49,605.131 |
| 20.200 |
| 1,002 |
| 1,161 |
| |||
AIM Dynamics |
| — |
| — |
| — |
| 578 |
| |||
American Funds Small Cap Fund |
| 57,757.899 |
| 20.280 |
| 1,171 |
| 2,081 | * | |||
Black Rock Equity Fund |
| 75,378.084 |
| 13.310 |
| 1,003 |
| 1,203 |
| |||
Fidelity Small Cap Fund |
| 20,881.923 |
| 16.770 |
| 350 |
| 351 |
| |||
First American Real Estate Fund |
| 19,872.156 |
| 11.460 |
| 228 |
| 321 |
| |||
Loomis Sayles Investment Grade Bond Fund |
| 87,221.934 |
| 9.720 |
| 848 |
| 793 |
| |||
TA IDEX Asset Allocation — Conservative Portfolio |
| 7,919.726 |
| 8.770 |
| 69 |
| 13 |
| |||
TA IDEX Asset Allocation — Growth Portfolio |
| 63,132.902 |
| 8.240 |
| 520 |
| 207 |
| |||
TA IDEX Asset Allocation — Moderate Portfolio |
| 125,805.070 |
| 8.830 |
| 1,111 |
| 548 |
| |||
TA IDEX Asset Allocation — Moderate Growth Portfolio |
| 28,682.814 |
| 8.640 |
| 248 |
| 73 |
| |||
Thornburg Core Growth Fund |
| 35,782.055 |
| 9.760 |
| 349 |
| 649 |
| |||
Vanguard International Value Fund |
| 48,374.445 |
| 23.430 |
| 1,133 |
| 1,560 |
| |||
American Century Vista Adv |
| 38,487.374 |
| 10.770 |
| 415 |
| — |
| |||
American Funds Fundamental Invs R3 |
| 8,657.342 |
| 24.940 |
| 216 |
| — |
| |||
BlackRock Global Financial Svcs Inv A |
| 4,603.857 |
| 5.650 |
| 26 |
| — |
| |||
Janus Adviser Balanced S |
| 39,201.552 |
| 20.930 |
| 821 |
| — |
| |||
Jennison Natural Resources A |
| 3,619.627 |
| 26.520 |
| 96 |
| — |
| |||
Diversified Stock Index Fund |
| 155,058.095 |
| 7.010 |
| 1,087 |
| 1,643 |
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Participant Loans |
|
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| 768 |
| 620 |
| |||
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Cash and Equivalents |
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Interest bearing cash |
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| 325 |
| 262 |
| |||
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Total Investments |
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| $ | 25,940 |
| $ | 33,976 |
| |
* |
| Investment in fund represents 5% or more of the net assets of the Plan. |
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| All investments are participant directed except for the non-vested matching employer contribution to the Universal American Corp. - Company Stock Fund, which is non-participant-directed. |
F-9
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 7 — Fair Value Measurements
Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS No. 157), establishes a framework for measuring fair value. That framework 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 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under SFAS No. 157 are described below:
Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
Level 2 — Inputs to the valuation methodology include:
· 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.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 — Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value.
Registered investment companies: Valued at quoted market prices determined on an active market which represent the net asset value of shares held by the Plan at year end.
Employer securities — company stock fund: Valued at net asset value which is based on the quoted market price of Universal American Corp. common stock determined on an active market.
Group annuity contract: Valued at contract value, which approximates fair value.
Participant loans: Valued at their outstanding balance, which approximates fair value.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while 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 table sets forth the Plan’s assets that we carry at fair value by SFAS 157 hierarchy level as of December 31, 2008 (in thousands):
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| ||||
Registered investment companies |
| $ | 15,960 |
| $ | 15,960 |
| $ | — |
| $ | — |
|
Employer securities — company stock fund |
| 5,433 |
| 5,433 |
| — |
| — |
| ||||
Group annuity contract |
| 3,454 |
| — |
| — |
| 3,454 |
| ||||
Participant loans |
| 768 |
| — |
| — |
| 768 |
| ||||
Total assets at fair value |
| $ | 25,615 |
| $ | 21,393 |
| — |
| 4,222 |
| ||
F-10
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
Level 3 Gains and Losses
The table below sets forth a summary of changes in the fair value of the Plan’s level 3 assets for the year ended December 31, 2008 (In thousands):
|
| Group |
| Participant |
| ||
Balance, beginning of year |
| $ | 2,614 |
| $ | 620 |
|
Net purchases, sales, and additions |
| 735 |
| 148 |
| ||
Net investment income |
| 105 |
| — |
| ||
Balance, end of year |
| $ | 3,454 |
| $ | 768 |
|
NOTE 8 - INVESTMENTS IN GROUP ANNUITY CONTRACT
The estimated contract value of the group annuity contract (The Contract), approximating the fair market value, was $3,453,960 as of December 31, 2008 and $2,614,047 as of December 31, 2007. There are no reserves against contract value for credit risk of the contract issuer.
The average yield on the Contract was 3.5% and 3.8% for the years ended December 31, 2008 and 2007, respectively. As of January 1, 2009 and 2008, the crediting interest rate on this contract was 3.50% and 3.85%, respectively. This is the same yield credited to participants. Crediting interest rates are generally reset monthly with the reset based on formulas which may use market value, book value, duration and yield.
The Contract does not specify any events which would limit the ability of the Plan to transact at contract value with the issuer or any events which would allow the issuer to terminate the contract and settle for an amount different from contract value. The Contract provides payment options of the contract value for surrendering the Contract; however, the Plan Sponsor does not intend to surrender the Contract.
NOTE 9 - NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets and the significant components of changes in net assets related to the primarily nonparticipant-directed investment is as follows:
|
| December 31, |
| ||||
|
| 2008 |
| 2007 |
| ||
Investments, at fair value: |
|
|
|
|
| ||
Universal American Corp. - company stock fund |
| $ | 5,432,847 |
| $ | 10,907,341 |
|
|
| Year ended |
| |
Change in net assets: |
|
|
| |
Net depreciation in fair value |
| $ | (7,240,823 | ) |
Contributions, net of forfeitures |
| 2,321,561 |
| |
Benefits paid to participants |
| (267,541 | ) | |
Administrative expenses |
| (50 | ) | |
Net transfers |
| (287,641 | ) | |
|
| $ | (5,474,494 | ) |
F-11
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 2008
NOTE 10 - - PARTIES-IN-INTEREST
Certain Plan investments are shares of registered investment companies managed by Diversified Investment Advisors, a subsidiary of Aegon. Diversified Investment Advisors is also the recordkeeper for the Plan. Certain other Plan investments are shares of registered investment companies managed by Transamerica Securities and Sales Corporation. The group annuity contract was issued to the Plan by Transamerica Life Insurance and Annuity Company. Transamerica Securities and Sales Corporation and Transamerica Life Insurance and Annuity Company are also subsidiaries of Aegon. In addition, Plan investments include shares of Universal American Corp.’s common stock.
F-12
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
PLAN NUMBER 002 EIN 11-2580136
SCHEDULE H, LINE 4i — SCHEDULE OF ASSETS (HELD AT END OF YEAR)
DECEMBER 31, 2008
|
| Identity of Issue, Borrower, Lessor or Similar Party |
| Description of Investment, Including |
| Cost |
| Current Value |
| ||
(A) |
| (B) |
| (C) |
| (D) |
| (E) |
| ||
|
|
|
|
|
| (In thousands) |
| ||||
|
| Employer Securities |
|
|
|
|
|
|
| ||
* |
| Universal American Corp. - Company Stock Fund |
| 610,130.582 shares of Company common stock |
| $ | 25,548 |
| $ | 5,433 |
|
|
|
|
|
|
|
|
|
|
| ||
|
| Registered Investment Companies |
|
|
|
|
|
|
| ||
|
| Franklin Micro Cap Value Fund |
| 48,236.660 shares, mutual fund |
|
| ** | 1,027 |
| ||
* |
| Transamerica Premier Equity Fund |
| 82,335.837 shares, mutual fund |
|
| ** | 1,144 |
| ||
* |
| Transamerica Premier Diversified Equity Fund |
| 62,583.130 shares, mutual fund |
|
| ** | 615 |
| ||
|
| Fidelity Advisor Mid Cap Fund |
| 43,046.917 shares, mutual fund |
|
| ** | 481 |
| ||
|
| Loomis Sayles Bond Fund |
| 51,349.952 shares, mutual fund |
|
| ** | 530 |
| ||
|
| Wells Fargo Advantage Government Securities Fund |
| 106,823.421 shares, mutual fund |
|
| ** | 1,153 |
| ||
|
| Wells Fargo Advantage Small Cap Value Fund |
| 17,734.438 shares, mutual fund |
|
| ** | 317 |
| ||
|
| American Funds-Growth Fund of America |
| 49,605.131 shares, mutual fund |
|
| ** | 1,002 |
| ||
|
| American Funds Small Cap Fund |
| 57,757.899 shares, mutual fund |
|
| ** | 1,171 |
| ||
|
| Black Rock Equity Fund |
| 75,378.084 shares, mutual fund |
|
| ** | 1,003 |
| ||
|
| Fidelity Small Cap Fund |
| 20,881.923 shares, mutual fund |
|
| ** | 350 |
| ||
|
| First American Real Estate Fund |
| 19,872.156 shares, mutual fund |
|
| ** | 228 |
| ||
|
| Loomis Sayles Investment Grade Bond Fund |
| 87,221.934 shares, mutual fund |
|
| ** | 848 |
| ||
* |
| TA IDEX Asset Allocation — Conservative Portfolio |
| 7,919.726 shares, mutual fund |
|
| ** | 69 |
| ||
* |
| TA IDEX Asset Allocation — Growth Portfolio |
| 63,132.902 shares, mutual fund |
|
| ** | 520 |
| ||
* |
| TA IDEX Asset Allocation — Moderate Portfolio |
| 125,805.070 shares, mutual fund |
|
| ** | 1,111 |
| ||
* |
| TA IDEX Asset Allocation — Moderate Growth Portfolio |
| 28,682.814 shares, mutual fund |
|
| ** | 248 |
| ||
|
| Thornburg Core Growth Fund |
| 35,782.055 shares, mutual fund |
|
| ** | 349 |
| ||
|
| Vanguard International Value Fund |
| 48,374.445 shares, mutual fund |
|
| ** | 1,133 |
| ||
|
| American Century Vista Adv |
| 38,487.374 shares, mutual fund |
|
| ** | 415 |
| ||
|
| American Funds Fundamental Invs R3 |
| 8,657.342 shares, mutual fund |
|
| ** | 216 |
| ||
|
| BlackRock Global Financial Svcs Inv A |
| 4,603.857 shares, mutual fund |
|
| ** | 26 |
| ||
|
| Janus Adviser Balanced S |
| 39,201.552 shares, mutual fund |
|
| ** | 821 |
| ||
|
| Jennison Natural Resources A |
| 3,619.627 shares, mutual fund |
|
| ** | 96 |
| ||
* |
| Diversified Stock Index Fund |
| 155,058.095 shares, mutual fund |
|
| ** | 1,087 |
| ||
|
|
|
|
|
|
|
|
|
| ||
|
| Group Annuity Contract |
|
|
|
|
|
|
| ||
* |
| Transamerica Stable Value Fund |
| Group Annuity Contract |
|
| ** | 3,454 |
| ||
|
|
|
|
|
|
|
|
|
| ||
|
| Loan Fund |
|
|
|
|
|
|
| ||
* |
| Participant Loans |
| Loans receivable from participants, maturing at various dates bearing interest at rates from 5.0% to 9.7% |
| N/A |
| 768 |
| ||
|
| Cash and Cash Equivalents |
|
|
|
|
|
|
| ||
* |
| Interest bearing cash |
| Unallocated accounts, including employer advances and forfeitures |
| N/A |
| 325 |
| ||
|
|
|
| Total |
|
|
| $ | 25,940 |
| |
* | Indicates party-in-interest. |
** | Cost information not required for member directed investments. |
F-13
UNIVERSAL AMERICAN CORP. 401(k) SAVINGS PLAN
PLAN NUMBER 002 EIN 11-2580136
SCHEDULE H, LINE 4j — SCHEDULE OF REPORTABLE TRANSACTIONS
IN EXCESS OF 5% OF PLAN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
(a) |
| (b) |
| (c) |
| (d) |
| (g) |
| (h) |
| (i) |
| |||||
Identity of Party |
| Description of |
| Total Cost of |
| Total |
| Transaction Expenses |
| Cost of Asset |
| Gain (Loss) as |
| |||||
|
|
|
|
|
|
|
| (In thousands) |
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Category (iii) — A series of transactions in a security issue aggregating 5% of Plan assets |
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Diversified Investment Advisors |
| Universal American Corp. - Company Stock Fund |
| $ | 14,370 |
| $ | 978 |
| $ | — |
| $ | 1,009 |
| $ | (31 | ) |
|
|
|
| (375 Buys) |
| (341 Sells) |
|
|
|
|
|
|
| |||||
Note: | Columns (e) and (f) have not been presented as this information is not applicable. |
| There were no category (i), (ii), or (iv) reportable transactions for the year ended December 31, 2008. |
F-14
Pursuant to the requirements of the Securities Exchange Act of 1934, the Investment Committee of the Universal American Corp. 401(k) Savings Plan has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized.
| UNIVERSAL AMERICAN CORP. | |
| 401(k) SAVINGS PLAN | |
|
| |
| By: | /s/ Robert A. Waegelein |
|
| Robert A. Waegelein, Trustee |
|
|
|
Date: June 18, 2009 |
|
|
F-15
