2019 REPORT AND ANNUAL MEETING 2019 REPORT ......VI. Harry and Shirley Klein Legal Scholarship...

2019 REPORT AND ANNUAL MEETING | 12019 REPORT AND ANNUAL MEETING

2019 REPORT AND ANNUAL MEETING | 2NOTICE OF ANNUAL MEETING

To: Member Agencies

From: Donald Fields, Secretary

Date: May 2020

The annual meeting of The 501 Alliance will be held at the University Club of Michigan State University on Friday, August 14, 2020. The University Club is located at 3435 Forest Road, Lansing, Michigan 48910. All members are invited and encouraged to attend.

The remainder of this document provides the information that will be reviewed during the meeting and the agenda for the day is as follows.

10:45 a.m. Registration and Refreshments

11:00 a.m. Business Matters

I. Approval of the Minutes from the last Annual Meeting (Section 1) Jan Mack, President

II. Annual Audit Report (Section 2) Brian Dixon, Yeo & Yeo

III. RatificationofAmendmentstotheBy-Laws(Section3) Jan Mack, President

IV. Nominating Committee Report (Section 4) Larry Poupard, Chairperson

V. Operations Report on Previous Year’s Activity (Section 5) Mike Pennanen, Administrator

VI. Harry and Shirley Klein Legal Scholarship Committee Report (presented at the meeting) Mark Teicher, Chairperson

VII. Executive Comments and Other Business Jan Mack, President

11:45 a.m. Complimentary Lunch

Please complete an RSVP form if you’re planning to attend, which will be available on our website (501alliance.org) starting on July 15. If you have any questions, please contact the Administrator at800-968-9675,option3.

2019 REPORT AND ANNUAL MEETING | 4MINUTES FROM THE LAST ANNUAL MEETING

Friday,May17,201911:00 a.m.

University Club of Michigan State University3435 Forest Road, Lansing, Michigan

Presiding: Larry Poupard, Vice President

The annual meeting of the membership of The 501 Alliance was held at the University Club of Michigan StateUniversity,3435ForestRoad,Lansing,MichiganonFriday,May17,2019,pursuanttoArticleIII,Section2oftheBy-Lawsofthecorporation.

VicePresidentLarryPoupardcalled themeeting toorderand thefirst itemon theagendawas theapprovaloftheminutesfromthelastannualmeetingofmembersheldonMay17,2018.Acopyofthese minutes was previously made available to the members of the group through The 501 Alliance’s website.

Upon motion duly made by Director Anne Evans and seconded by Director Art Gadomski, the minutes oftheMay17,2018annualmeetingwereunanimouslyapprovedandadoptedaswritten.

Next,Mr.BrianDixonofYeo&Yeopresentedtheindependentlyauditedfinancialreportpreparedforyear-endDecember31,2018.Acopyofthisreportwasalsopreviouslymadeavailabletothemembersof the group through The 501 Alliance’s website.

Hefirstexplainedanauditisanopiniononthefinancialstatementsofanorganizationforaperiodoftime and The501AlliancereceivedthecleanestopinionpossiblethattheirfinancialstatementsprovideafairandaccuraterepresentationoftheirfinancialpositionasofDecember31,2018.

Mr.Dixonthenreviewedsomefinancialhighlightsfromthereport.Hecommentedthegroupfinishedthe year with $55,000 in cash, which was a decrease of $948,000 from the previous year. The cash decreased,asitwasbeingheldinamoneymarketaccountatabankbutitisnowinvestedonashort-termbasisandcategorizeddifferently.Thevalueoftheinvestmentsatyear-endwas$28.17million,whichwasa$519,000increasefrom2017.Thisincreasewasduetomoneybeingmovedtotheinvestmentaccount as previously noted. The member fee receivable was $313,000, which was a decrease of 30% from the previous year, as the contribution rates for members were reduced. The total assets were $28.54million,whichwasadecreaseof$561,000fromthepreviousyear.Theclaimspayableliabilitywas$519,000,whichwasa$52,000decreasefrom2017.Thememberfeeswere$3.85million,whichwasa$1.64milliondecreasefrom2017,whichwasbasedonthereductioninthecontributionrates.The investment income was a negative $1.31 million, as the markets were down in the fourth quarter of2018.Theclaimsexpensewas$2.55million,whichwasa$162,000decreasefrom2017.Thetotalexpenses were $3.05 million, which was a $108,000 decrease from the previous year. Overall, the groupfinishedtheyearwith$28.02millioninunrestrictednetassets,whichwasa$509,000decreasefrom2017.


Next, he reviewed a trend analysis that showed the revenue, expenses and net assets of the group overthelasttenyears.Hestatedtheunrestrictednetassetsreachedahighof$28.53millionin2017,as compared to a low of $1.53 million in 2010, while the claims expense hit a high of $11.02 million in 2009andhaddecreasedto$2.55millionin2018.Finally,heindicatedthegroupisinastrongfinancialposition.

Vice President Larry Poupard then presented the Nominating Committee report and the slate of candidates beingnominatedforelectiontotheboardforthree-yeartermsexpiringin2022.Henotedthatallofthedirectors volunteer their time and each nominee is an incumbent who is willing to serve another term. The individuals being nominated to become directors on the board are as follows:

Incumbents:- Veneese Chandler, Executive Director, Family Outreach Center- DonaldFields,VPofOrganizational&IndividualDevelopment,VistaMaria- Jan Mack, HR Director, Alternative Services- Greg Scott, Executive Director (Retired), Pioneer Resources

UponmotiondulymadebyDirectorLaurieZarzeckiEmelanderandsecondedbyDirectorAnneEvans,the members voted unanimously to elect the slate of candidates to the Board of Directors for terms expiring in 2022.

Next, Mike Pennanen, the Administrator for The 501 Alliance presented the operations report for 2018. Heindicatedthegroupendedtheyearwith338members,whichwasthesameasin2017.Thenumberofmemberagencyemployeeswas23,619,whichwaslessthana1%decreasefromthepreviousyear.Thegrosspayrollswere$826million,whichwasa2%increasefrom2017andthetaxablepayrollswere $240 million, which was the same as the previous year.

In regard to expenses, the administration fee was $440,212, which was an increase of $20,000 from 2017,asthegrouphadreceivedafeecredit.Theauditfeewas$10,800,whichwasa$300increasefrom2017andtheaccountingfeeswere$7,740,whichwasa$100decreasefromthepreviousyear.

Inregardtotheclaimsforunemploymentbenefits,therewere2,488claimsprocessedin2018,whichwasa9%increasefrom2017.Theclaimsincreasedbasedinpartonimposterclaims,voluntaryquitsandclaimsfiledbyindividualswhoweremonetarilyineligibletoestablishaclaim.Forty-ninepercentof these claims were protested and the win percentage for these claims was 90%. Overall, 23% of theseclaimswerefora“lackofwork,”4%werefor“partialunemployment,”17%werefor“misconductdischarges,” 22% were for “voluntary quits,” 10% were for “poor performance discharges,” and 24% fell into the “other” category.

Inregardtotheunemploymentbenefitcharges,thereimbursementstothestatewere$2.55million,whichwasa6%decreasefromthepreviousyearandthetotalchargeerrorcreditswere$301,162,whichwasa6%increasefrom2017.


Next, Mark Teicher presented the Harry and Shirley Klein Legal Scholarship Committee report. The 501 Alliance and Human Services for Workers Compensation boards established this scholarship in honor ofHarryKlein and thework he did for nonprofits and in establishing legislation for a group reimbursing plan. The scholarship was funded by contributions from both boards. The scholarship was posted at different law schools in Michigan and candidates are required to submit essays indicating how their backgrounds and experiences are similar to those of Harry Klein.

Mark Teicher then announced that Allison Kruschke was the $2,500 scholarship winner. Ms. Kruschke iscurrentlyenrolledattheMichiganStateUniversityCollegeofLawandherGPAis3.65.Inadditiontopursuing her law degree, she has worked at the Michigan State University Housing Law Clinic and the Legal Aid Society of Milwaukee. She has also volunteered at The Guest House of Milwaukee and has participated in the AmeriCorps program.

Ms. Kruschke was not available to attend the meeting and Roxanne Canine, MSU Law Senior Director of Advancement accepted the check on her behalf. After presenting the check, Mark Teicher thanked the scholarship committee and the judges who have participated in the awarding of the scholarship in the past.

Vice President Larry Poupard then made some closing comments. He indicated the board has been abletoreducethecontributionratesformembersforanumberofyears,asthegrouphasbenefitedfromtheincreasesinthestockmarketandthereductioninunemploymentbenefitcharges.Duringthelast recession, the reserves of the group were almost depleted but they are now fully funded again. He isconfidenttheboardwillbeabletoreducetheratesformembersagainincalendaryear2020.

As there was no additional business, the meeting was then adjourned.

Respectfully submitted,

_____________________________ ___________________________Jan Mack, President Donald Fields, Secretary

2019 REPORT AND ANNUAL MEETING | 8AUDIT REPORT


Table of Contents

Page

Independent Auditors’ Report 1

Basic Financial Statements

Statement of Financial Position 3

Statement of Activities 4

Statement of Functional Expenses 5

Statement of Cash Flows 7

Notes to the Financial Statements 8


1

Independent Auditors’ Report

Management and Board of Directors The 501 Alliance Taylor, Michigan

We have audited the accompanying financial statements of The 501 Alliance which comprise the statement of financial position as of December 31, 2019 and 2018, and the related statements of activities, functional expenses and cash flows for the years then ended, and the related notes to the financial statements.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The 501 Alliance as of December 31, 2019 and 2018, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.


2

Adoption of New Accounting Standards

As described in Note 1 to the financial statements, The 501 Alliance changed its method of accounting for revenue recognition in 2019 as required by the provisions of FASB Accounting Standards Update 2014-09 Revenue from Contracts with Customers. Our opinion is not modified with respect to that matter.

Saginaw, MI April 1, 2020


2019 2018

AssetsCurrent assets

Cash 50,583$ 55,484$ Investments 33,934,262 28,167,991 Member fee receivable 261,751 313,151

Total assets 34,246,596$ 28,536,626$

Liabilities and net assetsCurrent liabilities

Claims payable 439,656$ 519,189$

Net assetsWithout donor restrictions

Undesignated 33,806,940 28,017,437

Total liabilities and net assets 34,246,596$ 28,536,626$

December 31, 2019 and 2018Statement of Financial Position

The 501 Alliance

See Accompanying Notes to the Financial Statements3


2019 2018

Support and revenueMember fees, net of refunds 3,169,908$ 3,845,666$ Investment income (loss) 5,346,501 (1,307,682)

Total support and revenue 8,516,409 2,537,984

ExpensesProgram services 2,551,811 2,854,688 Management and general 175,095 192,592

Total expenses 2,726,906 3,047,280

Change in net assets 5,789,503 (509,296)

Net assets - beginning of year 28,017,437 28,526,733

Net assets - end of year 33,806,940$ 28,017,437$

Years Ended December 31, 2019 and 2018Statement of Activities

The 501 Alliance



Program ManagementServices and General Total

Claims 2,237,425$ -$ 2,237,425$ Accounting Fees - 7,740 7,740 Audit Services - 11,100 11,100 Marketing - 2,902 2,902 Management Fees 314,346 147,928 462,274 Bank Fees - 3,598 3,598 Miscellaneous - 1,827 1,827 Bad debt 40 - 40

2,551,811$ 175,095$ 2,726,906$

The 501 AllianceStatement of Functional Expenses

Year Ended December 31, 2019



Program ManagementServices and General Total

Claims 2,546,439$ -$ 2,546,439$ Accounting Fees - 7,740 7,740 Audit Services - 10,800 10,800 Marketing - 3,325 3,325 Management Fees 299,344 140,868 440,212 Bank Fees - 3,436 3,436 Scholarship contribution - 25,000 25,000 Miscellaneous - 1,423 1,423 Bad debt 8,905 - 8,905

2,854,688$ 192,592$ 3,047,280$

The 501 AllianceStatement of Functional Expenses

Year Ended December 31, 2018



2019 2018

Cash flows from operating activitiesChange in net assets 5,789,503$ (509,296)$ Items not requiring cash

Net realized and unrealized (gain) loss on investments (3,142,148) 2,962,902 Bad debts 40 8,905

Changes in operating assets and liabilitiesMember fee receivable 51,360 122,562 Claims payable (79,533) (51,742)

Net cash provided by operating activities 2,619,222 2,533,331

Cash flows from investing activitiesPurchase of investments (2,981,076) (3,481,774) Proceeds from sales or maturities of investments 356,953 -

Net cash used by investing activities (2,624,123) (3,481,774)

Net change in cash (4,901) (948,443)

Cash - beginning of year 55,484 1,003,927

Cash - end of year 50,583$ 55,484$

Years Ended December 31, 2019 and 2018Statement of Cash Flows

The 501 Alliance



The 501 Alliance Notes to the Financial Statements

December 31, 2019 and 2018

8

Note 1 - Significant Accounting Policies Organization The 501 Alliance (the “Organization”) is an agency that consists of member nonprofit organizations throughout Michigan that are exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. These organizations, as members of The 501 Alliance, pay a variable fee as a percentage of taxable payroll (defined as that amount that would be otherwise taxable for state unemployment compensation tax purposes). The 501 Alliance reimburses the State of Michigan for unemployment compensation claims paid by the State to separated employees of The 501 Alliance’s member agencies. The 501 Alliance was formed in 1972. The accompanying financial statements have been prepared on the accrual basis of accounting. Basis of Presentation Net assets, revenues, gains, and losses are classified based on the existence or absence of donor or grantor imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows: Net assets without donor restrictions – Net assets available for use in general operations and not subject to donor (or certain grantor) restrictions.

Net assets with donor restrictions – Net assets subject to donor- (or certain grantor-) imposed restrictions. Some donor-imposed restrictions are temporary in nature, such as those that will be met by the passage of time or other events specified by the donor. Other donor-imposed restrictions are perpetual in nature, where the donor stipulates that resources be maintained in perpetuity. There are no net assets with donor restrictions at December 31, 2019 or 2018. Cash Cash includes currency on hand and deposits held by financial institutions that can be added to or withdrawn without limitation, such as demand deposits. The entire bank balance was insured by the FDIC. Member Fee Receivable The 501 Alliance’s member fee receivable balances at December 31, 2019 and 2018 were comprised mainly of the fourth quarter fees from member agencies based on a percentage of their taxable payrolls. Member Fees, Net of Refunds Member fees are recognized in the applicable year that correlates to taxable payroll from member agencies. Refunds typically result from calculation errors on quarterly contribution reports and are netted against member fees in the year the error is discovered. It is the Organization’s policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected.

Functional Expenses The costs of program and supporting services activities have been summarized on a functional basis in the statements of activities. The statements of functional expenses present the natural classification detail of expenses by function. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Those expenses include management fees. These are allocated based on a time and cost study of where efforts are made. Marketing The Organization expenses marketing costs the first time the marketing occurs. Marketing expense for the years ended December 31, 2019 and 2018 was $2,902 and $3,325, respectively.




9

Income Tax Status The 501 Alliance has been determined by the Internal Revenue Service to be a tax-exempt organization pursuant to Section 501(c)(4) of the Internal Revenue Code. The 501 Alliance annually files informational returns in the U.S. federal jurisdiction. Risks and Uncertainties The Organization invests 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 with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the balance sheet. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Subsequent Events Management has evaluated subsequent events through April 1, 2020, which is the date the financial statements were available to be issued. Change in Accounting Principle In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles of recognizing revenue, create common revenue recognition guidance, and improve disclosures. Accordingly, the Organization has elected to implement this standard using a full retrospective adjustment of the prior year financial statements. Net assets did not change as a result of this change. Note 2 - Liquidity and Availability Financial assets available for general expenditure, that is, without donor or other restrictions limiting their use, within one year of the statement of financial position date, comprise the following:

2019 2018

Cash 50,583$ 55,484$ Investments 33,934,262 28,167,991 Accounts receivable 261,751 313,151

34,246,596 28,536,626

The Organization utilizes a cash forecast for the current fiscal year that is updated and reviewed on a quarterly basis to ensure there is enough liquid money available to pay future liabilities. Money that is forecasted to be needed during the year is typically invested in a money market account or in a short-term bond fund. Any additional money that is available beyond what is projected to be required during the fiscal year is invested on a longer term basis. The Organization also has a $2,000,000 line of credit available to meet future cash flow needs.




10

Note 3 - Investments Investments are in available for sale securities which are recorded at fair value with net unrealized gains and losses included with realized gains and losses on the statement of activities as investment income. Fair value is determined based on quoted market prices. Investments consist of the following:

2019 2018Fair Value Fair Value

Equity InvestmentsAlliance Bernstein Funds Cap Growth Advisor 442,775$ -$ Amer. Funds AMCAP - 890,738 Amer. Funds Amer. Balanced Fund 2,372,649 1,986,335 Amer. Funds Capital Income Builder A 1,797,290 1,527,836 Amer. Funds Capital World Growth & Income 1,848,706 1,471,804 Amer. Funds EuroPacific 836,215 956,715 Amer. Funds Fundamental Investors 1,973,557 1,543,364 Amer. Funds Growth Fund of America 928,459 723,101 Amer. Funds Income Fund of America 2,083,176 1,748,188 Amer. Funds Investment Co. of America 1,023,753 820,619 Amer. Funds New Perspective Fund 2,555,219 2,257,366 Amer. Funds New World A 1,053,011 823,379 Amer. Funds Washington Mutual Investors 2,635,718 2,095,575 Fidelity Investments Growth Opportunities 445,600 - Fidelity Investments Initial Capital Appreciation 260,552 - Franklin Rising Dividends A 820,485 630,219 Franklin Small Cap Growth A 629,244 472,139 Franklin Foreign A - 230,736

21,706,409 18,178,114

Fixed IncomeDeposit Account IDA 34,781 54,986 PGIM Total Return 1,626,271 754,695 PIMCO Money Market Fund 710,140 466,960 PIMCO Emerging Markets Bond A 457,322 396,586 PIMCO Short Term A 1,377,134 1,459,213 PIMCO Low Duration 506,070 483,037 PIMCO Total Return 747,101 688,012 PIMCO Real Return 858,084 789,174 PIMCO Global Bond A 307,641 287,557 PIMCO Investment Grade Corp Bond A 2,497,854 1,745,246 Franklin Global Total Return A 352,111 345,163 Franklin Global Bond A 341,883 338,878 Franklin Income Advisor 694,714 598,783 Lord Abbett Short Duration Income I 983,724 930,794 Western Asset Core Plus Bond I 733,023 650,793

12,227,853 9,989,877

Total Investments 33,934,262$ 28,167,991$




11

Investment income consists of the following:

2019 2018Investment income (loss)

Interest 232$ 445$ Dividends 1,550,385 873,618 Capital gain distributions 713,077 839,575 Realized gain (loss) 463,533 (14,032) Unrealized gain (loss) 2,678,615 (2,948,870) Investment management fees (59,341) (58,418)

Total investment income (loss) 5,346,501$ (1,307,682)$

Note 4 - Claims Payable The liability for claims payable consists of the following:

2019 2018

Claims paid by the State for fourth quarter and billed to 439,656$ 519,189$ The 501 Alliance subsequent to December 31

The 501 Alliance also estimates that there is approximately $1,130,000 in potential future claims attributable to employees separated prior to December 31, 2019, for benefit weeks that may be incurred subsequent to December 31, 2019. Note 5 - Line of Credit The 501 Alliance has a $2,000,000 revolving line of credit with TriState Capital Bank, secured by the investments, with interest at the one month LIBOR rate as published in The Wall Street Journal plus 2.0%. As of December 31, 2019, there was an amount outstanding of $0. Note 6 - Fair Value Measurements The following table represents information about The 501 Alliance’s assets measured at fair value on a recurring basis at December 31, 2019 and 2018, and the valuation techniques used at the Organization to determine the fair value. In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets that the Organization has the ability to access. Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset. In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in the entirety are categorized based on the lowest level input that is significant to the valuation. The 501 Alliance’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset.




12

Disclosures concerning assets measured at fair value on a recurring basis are as follows:

Fair Value Measurements using

Quoted Prices Balance at in Active Markets

December 31, for Identical Assets2019 (Level 1)

Investments 33,934,262$ 33,934,262$

Fair Value

Measurements usingQuoted Prices

Balance at in Active MarketsDecember 31, for Identical Assets

2018 (Level 1)

Investments 28,167,991$ 28,167,991$

Fair values for investments are determined by reference to quoted market prices and other relevant information generated by market transactions.

Note 7 - Service Agreements Equifax Workforce Solutions provides The 501 Alliance with administrative services, claims management and supervision and the use of office space. The 501 Alliance has a multi-year agreement with Equifax Workforce Solutions. The agreement is effective January 1, 2019 for a period of five years. The 501 Alliance paid Equifax Workforce Solutions fees of $462,274 and $440,212 for the years ended December 31, 2019 and 2018.

The service agreement in effect for future years for 2,300 unemployment claims received a year is as follows:

2020 462,802$ 2021 462,802 2022 462,802 2023 462,802

1,851,208$




13

Note 8 - Revenue from Contracts with Customers The following summarizes revenue by type for the year ended December 31, 2019 and 2018:

2019 2018

Revenue from contracts with customers 3,169,908$ 3,845,666$ Investment income (loss) 5,346,501 (1,307,682)

Total revenue 8,516,409$ 2,537,984$

Bad debt expense as a result of impairment loss on receivables and contract assets on contracts with customers was $40 and $8,905 for the years ended December 31, 2019 and 2018, respectively. All revenue from contracts with customers is earned at a point in time. Membership revenues consists of the rate charged to each member, calculated by The 501 Alliance to pay future unemployment claims. The rate charged is variable to each member, based primarily on benefit charges and taxable wages. On a quarterly basis, each member will report their wages for that quarter and the rate for that quarter is calculated and payment is due from the member by the 25th of the following month. Because the majority of members paying timely, there is no constraint. The following summarizes contract assets:

December 31, 2019 December 31, 2018 January 1, 2018

Accounts receivable 261,751$ 313,151$ 444,618$

Note 9 – Subsequent Event As result of the global coronavirus pandemic of 2020, many organizations’ financial picture has seen an unanticipated change. The duration and full effects of the outbreak are currently unknown, as the global picture continues to change daily. While management is hopeful that the impact is temporary in nature, a description of known and anticipated circumstances expected to have a significant impact on our organization as of the date of management’s review is as follows: Investments – The stock market has experienced significant, double digit percentage declines and extreme volatility over the past several weeks leading up to the report date. The Organization currently has no immediate plans to liquidate investments and remains focused on long term appreciation.

2019 REPORT AND ANNUAL MEETING | 24RATIFICATION OF AMENDMENTS

PerArticleVII,Section1oftheBy-Laws,themembersinattendanceattheannualmeetingwillbeaskedtoratifythefollowingamendmentstotheBy-Laws.

1. Change Article IV – Board of Directors; Section 2 – Number of Directors

Current Language:Thenumberofdirectorsshallbenotlessthanfifteen(15)andnotmorethantwenty-one(21),whichnumbershallconstitutetheauthorizednumberofdirectorsuntilchangedbyanamendmentoftheBy-Laws.

New Language:The number of directors shall be not less than twelve (12) and not more than eighteen (18), which numbershallconstitutetheauthorizednumberofdirectorsuntilchangedbyanamendmentoftheBy-Laws.

2. Change Article IV – Board of Directors; Section 3 – Qualifications of Directors

Current Language:AlldirectorsshallberesidentsoftheStateofMichiganandnotlessthansixtypercent(60%)ofthe directors shall be agency employees or agency board members. A director elected as an agencyemployeeoragencyboardmembermayretainthequalificationforthedurationofhis/hercurrent term. No single county shall be represented by a majority of the members of the Board of Directors.

New Language:All directors shall be residents of the State of Michigan and a simple majority of the directors shallbeagencyemployees,agencyboardmembersorappointed,authorizedrepresentatives of member agencies. A director elected as an agency employee or agency board member mayretainthequalificationforthedurationofhis/hercurrentterm.Nosinglecountyshallbe represented by a majority of the members of the Board of Directors.

2019 REPORT AND ANNUAL MEETING | 26NOMINATING COMMITTEE REPORT

The Nominating Committee is recommending the individuals listed below to serve as directors on the Boardforthree-yeartermsexpiringin2023.Allofthedirectorsvolunteertheirtimeandprovideinputon topics that impact our members.

RecommendationsMs.LaurieZarzeckiEmelander IncumbentFinance DirectorLiteracy Center of West Michigan

Ms. Gale Frase IncumbentVicePresident-AdministrativeServicesEnnis Center for Children, Inc.

Mr. Art Gadomski IncumbentOfficeManagerKentCountyOfficeoftheDefender

Mr. Mike Larson IncumbentPresident & CEOMichigan Association of United Ways

Mr. Larry Poupard IncumbentChiefFinancialOfficerFinancial One Accounting, Inc.

If you are interested in becoming a director, please refer to the Board of Director’s page on our website (501alliance.org)foradditionalinformationorcontacttheAdministratorat800-969-9675,option3.Thisisagreatopportunitytomeet,workwithandlearnfromotherleaderswithinthenonprofit community.

2019 REPORT AND ANNUAL MEETING | 282019 OPERATIONS REPORT

IntroductionThis report provides information on a number of metrics that are tracked each year to provide members withanoverallpictureontheoperationsofthegroup.Thefirstpartofthisreportprovidesasummaryon the membership, revenue and expenses of the group and the second part provides information on the investments, contribution rates and unemployment claims. If you have any questions about the informationprovided,pleasecontacttheAdministratorat800-968-9675,option3.

Summary InformationThe following is a comparative schedule of pertinent operating highlights for the years ending December31,2017,2018and2019.Pleasenotethatthenumberofmemberagencyemployeesisnow calculated using an average based on each quarter of the year. Previously, the number of member agency employees was based on the number of employees reported in the fourth quarter only. We are now using an average, as it smooths out the numbers based on seasonal employment by members.

Membership

2017 2018 2019Member Agencies 338 338 339Number of Member Agency Employees 23,921 23,689 24,289

Gross Payrolls $808,941,666 $825,904,319 $869,394,970Taxable Payrolls $239,778,865 $239,608,022 $248,053,000Taxable Wage Base $9,000 $9,000 $9,000

Support and Revenue

2017 2018 2019Net Contributions by Member Agencies $5,484,767 $3,845,666 $3,169,908

Investment Income $3,539,108 -$1,307,682 $5,346,501Total Assets $29,097,664 $28,536,626 $34,246,596

Expenses

2017 2018 2019Administration $419,949 $440,212 $462,274Audit $10,500 $10,800 $11,100Accounting Services $7,838 $7,740 $7,740Legal $0.00 $0.00 $0.00Marketing $2,297 $3,325 $2,902


InvestmentsThe board uses a comprehensive investment policy to meet its objective of obtaining a competitive rate of return for the pool, commensurate with the “prudent person rule.” Per the investment policy, an allocationof44%to66%ofthetotalassetsmaybeinvestedinequities.Theremainderofthefundisallocated between bonds and cash.

Theboard’sfinancecommitteereviewsthispolicyonacontinuingbasis,inadditiontomeetingwiththeinvestment manager every quarter to review the performance of the investment fund.

Since September of 2004, WWK Advisors, Inc. has managed the fund and the average annual total returnsinceinceptionhasbeen6.79%.Thiswasanincreasefromyear-end2018whentheaverageannualtotalreturnwas5.42%.Theinvestmentsincreased,astheequityandfixedincomemarketssawsignificantgainsin2019.Thefundsareinvestedwithdifferentfundfamiliesthroughanaccountwith TD Ameritrade.

Contribution RatesA rate formula continues to be used to calculate the contribution rates for members. Previously, a rate table was used to determine rates. This change was made to provide members with a smoother rate transition from one year to the next by providing gradual rate changes, rather than drastic increases or decreases.

The rate committee and the board review the contribution rate structure each year to ensure the integrity of the fund. Information that is used to determine the rate structure includes; reserve levels, contributionincome,benefitreimbursementsandtheeconomicoutlook.Forpositiveratedmembersin2019, the board voted toreducethemaximumratefrom2.35%to2.17%andtodecreasetheminimumrate from 0.20% to 0.18%. For negative rated members, the board voted to reduce the maximum rate from11.50%to11.25%andtoreducetheminimumratefrom4.00%to3.75%.TheTaxableWageBaseremained at $9,000 for both positive and negative rated members.

Positive History Rate FormulaThe formula for those members who had positive histories is shown below.

Formula: 2.17%-0.075*(AccountHistory/(AverageoftheTaxablePayrolloverthe previous three years))

Maximum: 2.17% Minimum: 0.18%

Taxable Wage Base: $9,000

Negative History Rate FormulaThe formula for those members who had negative histories is shown below.

Formula: 3.75%-1.000*(AccountHistory/(AverageoftheTaxablePayrolloverthe previous three years))

Maximum: 11.25%Minimum: 3.75%Taxable Wage Base: $9,000


Penalty RatesTheboardfirst institutedpenaltyratesonJanuary1,1977tobringmemberswithnegativehistoriesbackintoapositivepositionmorequickly.Intakingthisaction,theboardaffirmeditsbeliefasamatterof equity that members with negative histories should continue to pay higher proportionate rates than those with positive histories. In 2019, ten members or 3% of the total membership had negative histories.This was a decrease of eleven members from the previous year.

In1996,theboardvotedtoassessasurchargeonmemberspayingthemaximumcontributionrate forthreeormoreconsecutiveyears.Thesurchargeistheamountbywhichbenefitchargesexceedmember contributions in the third year. In 2019, none of the members were assessed a surcharge, which was also the case in 2018.

Annual Claim ActivityInreviewingtheclaimactivityduring2019,2,127claimswereprocessed,whichwasa15%decreasefrom2018. Thenumberofclaimsdecreased,as thenumberof imposterclaims thatwerefiled for unemploymentbenefitsdecreasedfromeighty-fourin2018tojustonein2019.Inaddition,claimsforunemploymentbenefitshavebeentrendingdownwardbasedonthelowunemploymentrateinthestate.

Overall,46%oftheseclaimswereprotestedin2019,whichwasathreepercentagepointdecreasefrom2018.Theprotestpercentagedecreased,asonememberhadtolay-offsomestaff inthefirstquarter of 2019 due to the government shutdown.

Claim Activity By Separation IssueTheseparationreasonsnotedforclaimsfiledin2019areallocatedintosixcategories;lackofwork,partially unemployed, misconduct discharges, voluntary quits, poor performance discharges and other. During theyear,25%of theclaimsprocessedwerecategorizedasa“lackofwork,”5%were“partially unemployed,” 17% were “misconduct discharges,” 22% were “voluntary quits,” 12% were “poor performance discharges,” and 19% were in the “other” category.

In comparing the separation reasons between 2018 and 2019, claims for a lack of work and partially unemployed increased by a total of three percentage points. Claims that fell into the other category decreasedbyfivepercentagepoints,claimsthatfellintothepoorperformancecategoryincreasedbytwo percentage points and claims for voluntary quits remained the same.

Annual Decision AnalysisIn reviewing the decisions received during 2019, 91% of the claims decisions received were favorable. This high, favorable win percentage is attributable to the continued education of our members and one-on-oneconsultationsattheclaimlevel.

Annual Charge Error CreditsOneof themost importantbenefitsofmembership is theverificationofcharges to theaccountsofmembers.During2019,chargeerrorcreditstotaling$238,466werereceived,whichwasadecreaseof$62,696from2018.Thechargeerrorsdecreased,asthereimbursementstothestatedecreased,sotherewerefeweropportunitiestofinderrorsmadebythestate.


Charge error credits include: 1.)Wages and benefits drawn in the sameweek; 2.) the claimant is disqualified for a specific period of time due to ineligibility and benefits were drawn during the disqualificationperiod;and3.)benefitswerepaidpriortoadeterminationofchargesbeingissued.

Claims ReimbursementIn 2019, $2,237,425wasincurredinbenefitchargesfrommembers.Thiswasadecreaseof$309,014or 12% from 2018. The reimbursements decreased, as fewer claims were received for unemployment benefits.

In ClosingWecontinuetoencouragememberstoinformothernonprofitsaboutThe501Allianceandtheservicesweprovide.PleasehaveorganizationscontacttheAdministratorat800-968-9675orhavethemvisitour web site at 501alliance.org for more information.

2019 REPORT AND ANNUAL MEETING 2019 REPORT ......VI. Harry and Shirley Klein Legal Scholarship...

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