All other schedules required by Section 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable.
DEFINITIONS OF COMMONLY USED TERMS
Term
Definition
BNYM
Bank of New York Mellon
Board
Nordstrom, Inc.’s Board of Directors
CARES Act
Coronavirus Aid, Relief and Economic Security Act
Company
Nordstrom, Inc. and its participating subsidiaries
CCT
Common collective trust
DOL
Department of Labor
ERISA
Employee Retirement Income Security Act of 1974
GAAP
U.S. generally accepted accounting principles
IRA
Individual Retirement Account
IRC
Internal Revenue Code
IRS
Internal Revenue Service
NAV
Net asset value
Plan
Nordstrom 401(k) Plan
Plan Administrator
Nordstrom Retirement Committee appointed by the Board
Report of Independent Registered Public Accounting Firm
To the Plan Administrator and Participants of
Nordstrom 401(k) Plan
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of the Nordstrom 401(k) Plan (the Plan) as of December 31, 2021 and 2020, the related statement of changes in net assets available for benefits for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2021 and 2020, and the changes in net assets available for benefits for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Opinion on the Supplementary Information
The supplementary information included in Schedule H, line 4(i) – schedule of assets (held at end of year) as of December 31, 2021 and the Schedule H, line 4(a) – schedule of delinquent participant contributions for the year ended December 31, 2021 have been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplementary information is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplementary information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplementary information. In forming our opinion on the supplementary information in the accompanying schedules, we evaluated whether the supplementary information, including its form and content, is presented in conformity with Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplementary information in the accompanying schedules is fairly stated, in all material respects, in relation to the financial statements as a whole.
The Nordstrom 401(k) Plan, as amended and restated, was originally established on January 1, 1953 and is a defined contribution plan. In 2021, the Board approved an amendment to the Plan adopting certain QACA safe harbor provisions effective January 1, 2021. The Plan was restated in 2021 to incorporate these provisions, as well as provisions of the CARES Act. The Plan was further amended in 2021 to adopt provisions of the Bipartisan Budget Act of 2018 as well as other technical and administrative changes. The following description of the Plan’s provisions is for informational purposes only and does not bind the Plan. Participants should refer to the Plan documents for a more complete description of the Plan’s provisions.
General
The Plan covers substantially all employees of the Company and is subject to the provisions of ERISA. Employees are eligible to make elective salary deferrals and receive Company matching contributions upon hire. The Plan contains eligibility provisions to ensure that all eligible employees enter the Plan by the latest participation date required under the applicable provisions of the IRC.
Beginning January 1, 2021, Company contributions are paid each pay period that an eligible participant contributes to the Plan.
Plan Year
The Plan operates on a calendar year ending on December 31. References to 2021 and 2020 relate to the Plan years ended December 31, 2021 and December 31, 2020.
Trustee and Administrator of the Plan
BNYM is the asset trustee of the Plan and Alight Solutions provides recordkeeping services for the Plan.
The Plan is administered by the Company in conjunction with the Plan Administrator.
Plan Contributions
Contributions to the Plan are made through employee contributions, including catch-up contributions, Company contributions and participant rollover contributions. Contributions are subject to certain limitations of the IRC.
Employee Contributions — Eligible employees may elect to defer up to 50% of eligible compensation on a pre-tax basis, after-tax basis (“Roth”) or a combination of both. Employees age 50 and over are allowed a catch-up contribution on a pre-tax basis, Roth or a combination of both, beginning in the year they turn age 50. Eligible employees who neither make an affirmative salary deferral election nor affirmatively opt out of the Plan are automatically enrolled in the Plan with a deferral contribution equal to 3% of eligible compensation. This deferral percentage is automatically increased by 1% annually, up to 10%, unless the participant elects otherwise. Employees have the option to opt out of deferring or to change their deferral percentage at any time in accordance with the Plan.
Company Contributions — The Company matches employee contributions dollar for dollar on the first 1% of eligible compensation, and 50 cents per dollar on the next 6% of eligible compensation, up to a total of 4% of eligible compensation.
Participant Rollover Contributions — Participants eligible for a withdrawal from another eligible retirement plan or traditional IRA may roll over all or part of that amount into the Plan. Participants may not roll over amounts from a Roth IRA into the Plan.
Investments
Participants can direct the investment of their accounts (including employee and Company contributions) among various funds, debt securities and Company common stock. The funds as of December 31, 2021 and 2020 include a variety of mutual funds, CCT funds, separately managed funds and custom target retirement date funds. The available funds are regularly reviewed by the Plan Administrator and are subject to change at any time.
Participation in Investment Activity
Individual accounts are credited daily with a pro-rata share of investment income or loss experienced by the respective funds into which their account balances have been directed. This income or loss is included in net appreciation or depreciation in fair value of investments on the Statement of Changes in Net Assets Available for Benefits.
Employees who terminate employment due to retirement, disability or death are 100% vested in their Plan accounts, regardless of years of service. The Plan defines “retirement” as age 60 or older for the purposes of vesting. On termination of employment for reasons other than retirement, disability or death, the amounts credited to the accounts of participants are vested as follows:
Employee Contributions — Employee contributions (salary deferral, catch-up and rollover contributions) are always 100% vested.
Company Matching Contributions — Company matching contributions made on or after January 1, 2021 are 100% vested after completion of two years of service. A year of service is any year in which an employee works at least 1,000 hours. Company matching contributions made prior to January 1, 2021 vest as follows:
Years of Service
Vesting Percentage
Less than one
0%
One
33%
Two
67%
Three or more
100%
Forfeitures
Forfeitures of unvested Company matching contributions from terminated participant accounts can be used to offset Company matching contributions or to pay Plan administrative expenses, as determined by the Plan Administrator. At December 31, 2021 and 2020, forfeited unvested accounts were $1,152 and $1,286. In 2021, the Plan used forfeitures of $3,700 to offset Company matching contributions.
Benefit Payments
On termination of service, a participant (or participant’s beneficiary in the case of death) may elect to roll over the value of the vested interest in his or her account to another qualified plan, to receive the value as a lump-sum distribution or elect to remain in the Plan, if the vested account balance exceeds $1 (subject to required distributions under Section 401(a)(9) of the IRC). When an active participant reaches age 59½ and continues to work for the Company, the participant is eligible to receive a partial or full distribution of their account. The Plan also allows distributions to active participants for financial hardship, if certain criteria are met.
Participant Loans (Notes Receivable from Participants)
Participants may borrow a minimum of $1 from their account up to a maximum that is equal to the lesser of:
•50% of their vested account balance, less the balance of any other outstanding loans from the Plan as of the loan request date, or
•$50 less the highest outstanding principal balance of any loans, from this Plan or any other qualified Plan of the employer or a related employer, during the one-year period immediately preceding the loan request date
Loan terms are a maximum of five years or, if for the purchase of a principal residence, up to 20 years. The loans are secured by the balance in the participant’s account. The interest rate for a loan is determined at the time it is approved. The rate will be the prime rate as reported by the Wall Street Journal on the 15th day of the prior month, plus 1%. Interest rates for participant loans outstanding at December 31, 2021 range from 4.25% to 9.25% with various maturities through December 2041. Principal and interest is paid through payroll deductions, following the participant’s bi-weekly payroll cycle. A participant may have a maximum of two loans outstanding at any one time.
Participants may make monthly loan repayments during approved leaves of absence. Alternatively, payment obligations may be suspended during approved leaves of absence not longer than one year and during periods of qualified military service. Participants may continue to make loan repayments after termination of employment under procedures established by the Plan Administrator. Loan balances that become delinquent will be deemed distributed and become taxable income to the participant.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements have been prepared in accordance with GAAP.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires Company management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, and changes therein and disclosure of contingent assets and liabilities during the reporting period. Uncertainties regarding such estimates and assumptions are inherent in the preparation of financial statements and actual results may differ from these estimates and assumptions.
The Plan holds various investment instruments, including, but not limited to, common stock, debt securities, mutual funds and CCTs. Investment securities, in general, are exposed to various risks, such as interest rate risk, credit risk and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and such changes could materially affect participants’ account balances and the amounts reported in the financial statements.
Investment Valuation and Income Recognition
The Plan’s investments are held by the trustee and are recorded at fair value as follows:
•Common stock is valued at quoted market prices as of the last trading day of the Plan year.
•Shares of mutual funds are valued at quoted market prices as of the last trading day of the Plan year.
•CCTs are measured using the NAV practical expedient of the CCT as reported by the CCT managers. The NAV practical expedient is based on the fair value of the underlying assets owned by the CCT, less its liabilities, and divided by the number of units outstanding.
•Investments in debt securities are valued using the market approach and observable inputs, such as observable trade prices, multiple broker/dealer quotes, related yield curves and other assumptions about the securities.
•Self-directed brokerage accounts allow participants to invest all or a portion of their account in investments of their choice. The fair value is based on the underlying investments, which may include common stock, mutual funds and debt securities.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on an accrual basis. Dividends are recorded when earned.
Net realized gains or losses on investment sales represent the difference between the sale proceeds and cost of the investments, or the adjusted market price. Net unrealized appreciation or depreciation on investments held at the end of the Plan year represents the net change in the fair value of investments during the year. The Statement of Changes in Net Assets Available for Benefits presents the net appreciation or depreciation in fair value of investments, which consists of realized and unrealized gains and losses.
Notes Receivable from Participants
Participant loans are included in notes receivable from participants on the Statements of Net Assets Available for Benefits and are measured at their unpaid principal balance plus any accrued unpaid interest. Delinquent participant loans are recorded as distributions based on the terms of the Plan document.
Benefit Payments
Benefits are recorded when paid. Amounts allocated to former participants who have withdrawn from the Plan, but have not yet been paid as of December 31, 2021 and 2020, were $7,736 and $907.
Administrative Expenses
Substantially all of the administrative expenses, including recordkeeping, trustee and other fees, incurred in connection with the Plan are paid by the Plan through an allocation to participant accounts.
NOTE 3: FAIR VALUE MEASUREMENTS
The Plan discloses its assets that are measured at fair value in the Statements of Net Assets Available for Benefits by level within the fair value hierarchy as defined by applicable accounting standards:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Other observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that cannot be corroborated by market data that reflect the reporting entity’s own assumptions
The following tables set forth, by level within the fair value hierarchy, a summary of the Plan’s investments that were measured at fair value on a recurring basis as of December 31, 2021 and 2020. There have been no changes in the methodologies used at December 31, 2021 and 2020.
December 31, 2021
Level 1
Level 2
Total
Fair value hierarchy:
Common stock
$949,284
$—
$949,284
Debt securities
44,372
162,161
206,533
Mutual funds
985,224
—
985,224
Brokerage securities
47,538
4,856
52,394
Other1
270
—
270
Total assets in fair value hierarchy
$2,026,688
$167,017
$2,193,705
Investments measured at NAV practical expedient
1,742,299
Total participant-directed investments at fair value
$3,936,004
1 Other primarily includes interest-bearing cash securities.
December 31, 2020
Level 1
Level 2
Total
Fair value hierarchy:
Common stock
$1,060,718
$—
$1,060,718
Debt securities
18,841
179,762
198,603
Mutual funds
831,404
—
831,404
Brokerage securities
37,325
4,911
42,236
Other1
(5,328)
—
(5,328)
Total assets in fair value hierarchy
$1,942,960
$184,673
$2,127,633
Investments measured at NAV practical expedient
1,641,868
Total participant-directed investments at fair value
$3,769,501
1 Other primarily includes pending receivable transactions for dividends and interest.
The Plan’s NAV practical expedient funds are primarily composed of CCT’s, which are measured daily and may be redeemed daily with no restrictions related to the redemption notice period.
The Plan did not have any Level 3 measurements as of December 31, 2021 and 2020. During 2021, there were no transfers in or out of Levels 1, 2 or 3.
NOTE 4: PARTY-IN-INTEREST TRANSACTIONS
Parties-in-interest include fiduciaries or employees of the Plan, any person who provides services to the Plan, an employer whose employees are covered by the Plan, an employee organization whose members are covered by the Plan, a person who owns 50% or more of such an employer or employee organization or relatives of such persons. As of December 31, 2021 and 2020, Plan investments included units held in a collective trust managed by BNYM, BNYM common stock and interest-bearing cash managed by BNYM. As of December 31, 2021 and 2020, the Plan held 3,169 and 3,637 shares of Nordstrom, Inc. common stock, with a cost basis of $117,402 and $137,781. The Plan recorded no dividend income from Nordstrom, Inc. common stock during 2021, as the Company temporarily suspended quarterly dividend payments beginning in the second fiscal quarter of 2020. The Company resumed payment of dividends in the first fiscal quarter of 2022. In addition, the Plan holds notes receivable from participants and paid certain expenses related to plan operations and investment activities to various service providers. Transactions with these entities qualify as exempt party-in-interest transactions.
The Plan as restated as of January 1, 2021 is an individually designed plan. While the restated Plan document does not have a determination letter from the IRS, the Company and Plan management believe that the Plan is currently designed and operated in compliance with the applicable requirements of the IRC, and the Plan and related trust continue to be tax-exempt. Therefore, no provision for income taxes has been included in the Plan’s financial statements.
GAAP requires Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan Administrator has concluded that as of December 31, 2021 and 2020, there are no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements.
NOTE 6: PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. Under the Plan, the Company may also temporarily suspend contributions, which does not constitute or require termination of the Plan.
In the event the Plan is terminated, the respective accounts of the participants under the Plan shall become fully vested and nonforfeitable. After payment of expenses properly chargeable against the Plan, the trustee shall distribute all Plan assets to the participants in the proportions determined by their respective accounts.
NOTE 7: EXCESS CONTRIBUTIONS PAYABLE TO PARTICIPANTS
The Plan is subject to certain non-discrimination rules under ERISA and the IRC. For 2021, the Plan passed all applicable non-discrimination tests. For 2020, the Plan failed certain non-discrimination tests under the IRC due to lower deferral percentages by non-highly compensated eligible employees relative to the deferral percentages of highly compensated eligible employees. In order to meet the requirements of the non-discrimination rules, the Plan refunded a portion of the contributions made by highly compensated participants, in accordance with applicable provisions of the IRC. Additionally, the Plan is required to return contributions received from participants during the Plan year in excess of the IRC limits. Refunds are accrued within excess contributions payable to participants in the Statements of Net Assets Available for Benefits and reduce participant contributions on the Statement of Changes in Net Assets Available for Benefits. There was no refund for 2021. The net refund for 2020, paid in 2021, totaled $1,098 and included approximately $163 of investment earnings.