11KYE2013


 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 11-K
 
T   ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ending December 31, 2013
 
Or
 
£   TRANSITION REPORT PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from _____ to ______
 
Commission file number 333-27429
 
THE AERC 401(K) SAVINGS PLAN AND TRUST
(Exact name of Plan)
 
      001      
Plan Number
 
ASSOCIATED ESTATES REALTY CORPORATION
(Exact name of registrant as specified in its charter)
 
 
Ohio
 
34-1747603
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
1 AEC Parkway, Richmond Hts., Ohio
 
44143-1550
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
(216) 261-5000
 
 
(Registrant's telephone number, including area code)
 
 
 
 
 
 
 
 
(Former name, former address and former fiscal year,
 
 
if changed since last report)
 
 





THE AERC 401(k) Savings Plan and Trust
 
December 31, 2013
 
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
Financial Statements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2



Report of Independent Registered Public Accounting Firm
To Participants and Administrator of The AERC 401(K)
Savings Plan and Trust
We have audited the accompanying statements of net assets available for benefits of The AERC 401(K) Savings Plan and Trust (the "Plan") as of December 31, 2013 and 2012, and the related statement of changes in net assets available for benefits for the year ended December 31, 2013. 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 audit.
We conducted our audit 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. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit 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, as well as evaluating the overall financial presentation. We believe that our audit provides 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 as of December 31, 2013 and 2012, and the changes in net assets available for benefits for the year ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2013, is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is 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. The supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
/s/ CohnReznick LLP
Chicago, Illinois
June 17, 2014



3



The AERC 401(K) Savings Plan and Trust
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2013 and 2012

 
2013
 
2012
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Investments at fair value, participant-directed (Note D)
$
11,286,690

 
$
9,138,332

 
 
 
 
 

Participant notes receivable
 
298,067

 
 
173,684

 
 
 
 
 
 
Total assets
 
11,584,757

 
 
9,312,016

 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Excess contributions refundable
 
9,070

 
 
13,638

 
 
 
 
 
 
Net assets reflecting investments at fair value
 
11,575,687

 
 
9,298,378

 
 
 
 
 
 
Adjustment from fair value to contract value for
 
 
 
 
 
fully benefit-responsive investment contract
 
-

 
 
-

 
 
 
 
 
 
Net assets available for benefits
$
11,575,687

 
$
9,298,378

The accompanying notes are an integral part of these financial statements.


4



The AERC 401(K) Savings Plan and Trust
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 2013
Additions:
 
 
 
 
Investment and loan interest income:
 
 
 
 
Interest and dividends
 
 
 
$
277,257

  Net appreciation in fair value of investments (Note D)
 
 
 
1,621,660
 
Contributions:
 
 
 
 
Employer
$
154,080

 
 
Rollover
 
53,982

 
 
Participants
 
914,473

 
1,122,535
 
 
 
 
 
 
Total additions
 
 
 
3,021,452
 
 
 
 
 
 
Deductions:
 
 
 
 
Benefits paid to participants
 
 
 
682,900
 
Expenses paid
 
 
 
61,243
 
Total deductions
 
 
 
744,143
 
 
 
 
 
 
Net increase
 
 
 
2,277,309
 
 
 
 
 
 
Net assets available for benefits:
 
 
 
 
 
 
 
 
 
Beginning of year
 
 
 
9,298,378
 
 
 
 
 
 
End of year
 
 
 
$
11,575,687
 
The accompanying notes are an integral part of these financial statements.



5



The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS
December 31, 2013
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of The AERC 401(K) Savings Plan and Trust (the "Plan") have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") as applied to profit-sharing trusts and in accordance with the terms of the Trust Agreement. A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows.
1.    Basis of Accounting
The financial statements of the Plan are prepared under the accrual method of accounting.
2.    Investment Valuation and Income Recognition
The Plan's investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For further information, see Note C. Fair Value Measurements.
Investment income is recorded as earned and reinvested in Plan assets. 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. Net appreciation includes the Plan's gains and losses on investments bought and sold as well as held during the year.
3.    Federal Income Taxes
The Plan has received a favorable determination letter dated February 15, 1996 from the Internal Revenue Service ("IRS"), which classified the Plan as a qualified employee benefit plan exempt from income taxes under the Employee Retirement Income Security Act of 1974 ("ERISA"). Although the Plan has been amended since receiving the determination letter, the Plan Administrator believes the Plan is designed, and is currently being operated, in compliance with the applicable requirements of the Internal Revenue Code ("IRC") and, therefore, believes the Plan is qualified, and the related trust is tax-exempt.
Accounting principles generally accepted in the United States of America ("GAAP") require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain tax position that more likely than not would not be sustained upon examination by the IRS. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2013 there are no uncertain tax positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions. However, there are currently no audits in progress for any tax periods. The Plan Administrator believes the Plan is no longer subject to income tax examinations for years prior to 2010.
4.    Participant Notes Receivable
Participant notes receivable are measured at their unpaid principal balances plus any accrued but unpaid interest. Delinquent participant loans are reclassified as distributions based upon the terms of the Plan document. No allowance for credit losses has been recorded as of December 31, 2013 or 2012.
    

6



The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2013
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum of 50% of their account balances. The loans are secured by the balance in the participant's account, bear interest at rates varying from 4.25% to 6.00%, and are being amortized over the terms of the loans with bi-weekly payments of principal and interest. Interest on the loans is credited to the participant's account. The loans have maturity dates equal to or less than five years (ten years if the loan funds are utilized to purchase a primary residence) from the date of the loan.
5.    Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and accompanying notes. Actual results could differ from those estimates.
6.    Payment of Benefits
Benefits are recorded when paid.
7.    Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risk. 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 participants' balances and the amounts reported in the statements of net assets available for benefits.
8.    Excess Contributions Refundable
Amounts payable to participants for contributions in excess of amounts allowed by the IRS are recorded as a liability with a corresponding reduction to contributions. The Plan distributed the 2013 and 2012 excess contributions to the applicable participants prior to March 15, 2014 and 2013, respectively.
9.    Participant Accounts
Each participant's account is credited with the participant's contributions and employer matching contributions, as well as allocations of the Plan earnings. Participant accounts are charged with an allocation of administrative expenses that are paid by the Plan. Allocations based on participant earnings, account balances, or specific participant transactions as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested balance.
NOTE B. DESCRIPTION OF THE PLAN
The following description of the Plan provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions.


7



The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2013

NOTE B. DESCRIPTION OF THE PLAN (Continued)
The Plan, which became effective April 1, 1990, is sponsored by a controlled group of corporations. The Plan has been amended several times and restated for the purpose of modifying the benefits provided and complying with changes in applicable law. The Trustees of the Plan are responsible for oversight of the Plan.
Employees are eligible to participate in the Plan with elective deferrals after six months of service provided that they have reached the age of 21. Twelve months of service is required for a participant to receive an employer matching contribution, which has been currently set at 25% of the participant's contribution up to a maximum participant contribution of 6% of his or her gross wages. The contribution is subject to change from time to time at the discretion of the Trustees of the Plan. Participants may elect to contribute up to 50% of their gross wages, and currently have the option of investing their accounts between 25 different investment options. The investment options include Associated Estates Realty Corporation ("AERC") common stock, an unallocated insurance contract, 22 mutual funds, and one pooled separate account. Participants are immediately vested in the portion of their investment account which includes participant contributions plus actual earnings thereon. Vesting in the employer matching contribution portion of their accounts is based on years of service. A participant is 100% vested after three years of credited service. Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans (rollover). Contributions are subject to certain IRS limitations.
At December 31, 2013 and 2012, forfeited nonvested accounts totaled $52,690 and $43,913, respectively. These accounts will be applied to the Plan's administrative expenses and any excess amount will be used to reduce future employer contributions. AERC will be responsible for any administrative expenses that the accounts do not pay.
On termination of service, a participant may elect to receive either a lump sum amount equal to the value of his or her account, installment payments, a distribution in-kind, or any reasonable combination of the foregoing.


8



The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2013
NOTE C. FAIR VALUE MEASUREMENTS
GAAP establishes a framework for measuring fair value. That framework provides a fair value hierarchy which 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 GAAP 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:
 
           
 
 
Ÿ
Quoted prices for similar assets or liabilities in active markets;
 
 
 
           
 
 
Ÿ
Quoted prices for identical or similar assets or liabilities in inactive markets;
 
 
 
             
 
 
Ÿ
Inputs other than quoted prices that are observable for the asset or liability; and
 
 
 
           
 
 
Ÿ
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 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 must 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. There have been no changes in the methodologies used at December 31, 2013 and 2012.
Mutual Funds: Valued at the daily closing price as reported by the Fund. Mutual funds held by the Plan are open-end mutual funds registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value ("NAV") and to transact at that price. The mutual funds held by the Plan are deemed to be actively traded.
Pooled Separate Accounts: The fair value of the participation units owned by the Plan is based on the net assets of the underlying pool of securities on the last business day of the Plan year as determined by Prudential Retirement Insurance & Annuity Company ("PRIAC").
Common Stock: Valued at the closing price reported on the active market on which the individual securities are traded.
Guaranteed Income Fund: Valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations considering the credit-worthiness of the issuer (See Note E).

9



The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2013
NOTE C. FAIR VALUE MEASUREMENTS (Continued)
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 by level within the fair value hierarchy, the Plan's assets at fair value as of December 31, 2013:
 
Assets at Fair Value as of December 31, 2013
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Mutual Funds:
 
 
 
 
 
 
 
 
 
 
 
 
Large Cap Stock-Blend
$
1,934,617

 
$

 
$

 
$
1,934,617

 
Large Cap Stock-Value
1,788,420
 
 
 
 
 
 
1,788,420
 
 
Balance Speciality
1,323,778
 
 
 
 
 
 
1,323,778
 
 
Large Cap Stock-Growth
841,303
 
 
 
 
 
 
841,303
 
 
Fixed Income-Intermediate Bond
815,043
 
 
 
 
 
 
815,043
 
 
International Stock Blend
667,139
 
 
 
 
 
 
667,139
 
 
Mid Cap Stock-Value
376,865
 
 
 
 
 
 
376,865
 
 
Small Cap Stock-Growth
346,432
 
 
 
 
 
 
346,432
 
 
Fixed Income-Multisector
202,799
 
 
 
 
 
 
202,799
 
 
International Stock-Emerging Markets
169,216
 
 
 
 
 
 
169,216
 
 
Small Cap Stock-Value
135,100
 
 
 
 
 
 
135,100
 
 
Mid Cap Stock-Growth
111,214
 
 
 
 
 
 
111,214
 
 
Specialty-Real Estate
65,068
 
 
 
 
 
 
65,068
 
 
Mid Cap Stock-Blend
53,941
 
 
 
 
 
 
53,941
 
 
Fixed Income-Government Securities
9,327
 
 
 
 
 
 
9,327
 
Pooled Separate Account
 
 
117,553
 
 
 
 
117,553
 
AERC Common Stock
710,842
 
 
 
 
 
 
710,842
 
Guaranteed Income Fund
 
 
 
 
1,618,033
 
 
1,618,033
 
Total assets at fair value
$
9,551,104

 
$
117,553

 
$
1,618,033
 
 
$
11,286,690



10



The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2013
NOTE C. FAIR VALUE MEASUREMENTS (Continued)
The following table sets forth by level within the fair value hierarchy, the Plan's assets at fair value as of December 31, 2012:
 
Assets at Fair Value as of December 31, 2012
 
 
 
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
Mutual Funds:
 
 
 
 
 
 
 
 
 
 
 
 
Balance Specialty
$
2,398,056

 
$

 
$

 
$
2,398,056

 
Large Cap Stock-Blend
1,474,293
 
 
 
 
 
 
1,474,293
 
 
Large Cap Stock-Value
1,226,646
 
 
 
 
 
 
1,226,646
 
 
Fixed Income-Intermediate Bond
488,783
 
 
 
 
 
 
488,783
 
 
International Stock-Blend
321,782
 
 
 
 
 
 
321,782
 
 
Small Cap Stock-Growth
244,340
 
 
 
 
 
 
244,340
 
 
Mid Cap Stock-Value
222,828
 
 
 
 
 
 
222,828
 
 
Large Cap Stock-Growth
208,889
 
 
 
 
 
 
208,889
 
 
Fixed Income-Multisector
195,861
 
 
 
 
 
 
195,861
 
 
International Stock-Emerging Markets
68,780
 
 
 
 
 
 
68,780
 
 
Specialty-Real Estate
63,038
 
 
 
 
 
 
63,038
 
 
Small Cap Stock-Value
37,971
 
 
 
 
 
 
37,971
 
 
Mid Cap Stock-Blend
25,514
 
 
 
 
 
 
25,514
 
 
Fixed Income-Government Securities
20,074
 
 
 
 
 
 
20,074
 
 
Mid Cap Stock-Growth
12,596
 
 
 
 
 
 
12,596
 
AERC Common Stock
889,466
 
 
 
 
 
 
889,466
 
Guaranteed Income Fund
 
 
 
 
1,239,415
 
 
1,239,415
 
Total assets at fair value
$
7,898,917

 
$

 
$
1,239,415
 
 
$
9,138,332


11



The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2013
NOTE C. FAIR VALUE MEASUREMENTS (Continued)
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, 2013.
 
 
Level 3 Assets
                  
 
 
 
 
Year Ended
 
 
December 31, 2013
 
 
 
 
 
Guaranteed
 
 
Income
 
 
Fund
             
 
 
Balance, beginning of year
 
 $
1,239,415

Realized gains/(losses)
 
 
Unrealized gains/(losses) relating to instruments still held
 
 
at the reporting date
 
 
Purchases
 
577,403
 
Sales
 
 
(198,785
)
Balance, end of year
 
 $
1,618,033


The following table represents the Plan's level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, and the significant unobservable inputs and the ranges of values for those inputs.
 
 
 
 
Principal Valuation
 
Unobservable
 
 
Instrument
 
Fair Value
 
Technique
 
Inputs
 
Rate Applied
 
 
 
 
 
 
 
 
 
Guaranteed
 
 
 
Discounted
 
Average yield
 
1.57%
income fund
 
$
1,618,033

 
cash flow
 
earned by Plan
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average yield
 
1.57%
 
 
 
 
 
 
credited to
 
 
 
 
 
 
 
 
participants
 
 



12



The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2013
NOTE D. INVESTMENTS
The Plan's investments are held by PRIAC at December 31, 2013 and 2012. The following table presents the fair value of the investments at December 31, 2013 and 2012, and separately identifies those investments that represent 5% or more of the Plan's net assets.

 
 
December 31,
 
December 31,
 
 
2013
 
2012
Description
 
Fair Value
 
Fair Value
                  
 
 
 
 
Investment at fair value as determined by Prudential:
 
 
 
 
Dodge & Cox Stock Fund
 
$
1,788,420

 
$
1,226,646

Vanguard Index Trust 500 Portfolio
 

1,768,062

 
 
1,474,293

Guaranteed Income Fund
 
1,618,033
 
 
1,239,415
 
T. Rowe Price Retirement 2020
 
974,480
 
 
1,406,940
 
T. Rowe Price Growth Stock
 
841,303
 
 
321,782*
 
PIMCO Total Return Institutional
 
815,043
 
 
488,783
 
AERC Common Stock
 
710,842
 
 
889,466
 
T. Rowe Price Retirement 2030
 
188,610*
 
 
495,817
 
All other (Investments less than 5%)
 
2,581,897
 
 
1,595,190
 
                
 
 
 
 
 
 
$
11,286,690

 
$
9,138,332

*Investments represent less than 5% of the Plan's net assets.
During the year ended December 31, 2013, the Plan's participant-directed investments (including investments bought, sold and held during the year) appreciated in value by $1,621,660 as follows:
Mutual Funds
 
$
1,617,469

Pooled Separate Account
 
 
7,246

AERC Common Stock
 
(3,055
)
              
 
 
 
 
$
1,621,660




13



The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2013
NOTE E. INVESTMENT CONTRACT WITH INSURANCE COMPANY
The Plan includes a guaranteed income fund, which holds a fully benefit-responsive synthetic guaranteed investment contract with PRIAC. PRIAC maintains contributions in an insurance company-issued general account evergreen group annuity spread product. The account is credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses. The Plan owns a promise to pay interest at crediting rates, which are announced in advance and guaranteed for a specified period of time as outlined in the group annuity insurance contract. There are no specific securities in the general account that back the liabilities of this annuity contract. Because the guaranteed investment contract is fully benefit-responsive, contract value is the relevant measurement attribute for that portion of the net assets available for benefits attributable to the guaranteed investment contract. The guaranteed investment contract is presented on the face of the statement of net assets available for benefits at fair value with an adjustment to contract value in arriving at net assets available for benefits. Contract value represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses. Contract value approximates fair value at December 31, 2013 and 2012. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment contract at contract value. There are no reserves against contract value for credit risk of the contract issuer or otherwise. Certain events limit the ability of the Plan to transact at contract value with the issuer. Such events include (1) amendments to the Plan documents (including complete or partial Plan termination or merger with another plan), (2) changes to the Plan's prohibition on competing investment options or deletion of equity wash provisions, (3) bankruptcy of the Plan sponsor or other Plan sponsor events that cause a significant withdrawal from the Plan, or (4) the failure of the trust to qualify for exemption from Federal income taxes or any required prohibited transaction exemption under ERISA. The Plan administrator believes that any events which would limit the Plan's ability to transact at contract value with participants are not likely to occur. The guaranteed investment contract does not permit the insurance company to terminate the agreement prior to the scheduled maturity date. The average yield and crediting interest rates were 1.57% and 1.00% for 2013 and 2012, respectively. The crediting interest rate is based on a formula agreed upon with the issuer, but may not be less than zero percent. Such interest rates are reviewed for resetting on a semi-annual basis.
NOTE F. PLAN TERMINATION
Although it has not expressed any intent to do so, the companies participating in the Plan have the right to discontinue their matching contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants would become 100% vested in their employer contributions.
NOTE G. PARTY-IN-INTEREST TRANSACTIONS
For the years ended December 31, 2013 and 2012, the Plan purchased AERC common stock at a cost of $21,307 and $47,319, respectively. The fair value of AERC common stock included in investments at December 31, 2013 and 2012 was $710,842 and $889,466, respectively.
Certain Plan investments are units of pooled separate accounts managed by PRIAC. PRIAC is a trustee as defined by the Plan and, therefore, these transactions qualify as party-in-interest. Fees paid by the Plan to PRIAC for investment management services for the years ended December 31, 2013 and 2012 amounted to $61,243 and $53,010, respectively.
At December 31, 2013 and 2012, the Plan's participants had outstanding loans of $298,067 and $173,684, respectively, which were secured by their account balances.

14



The AERC 401(K) Savings Plan and Trust
NOTES TO FINANCIAL STATEMENTS - (Continued)
December 31, 2013
NOTE H. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per the financial statements as of December 31, 2013 and 2012 to the Form 5500:
 
 
December 31,
 
 
December 31,
 
 
2013
 
 
2012
 
 
 
 
 
 
Net assets available for benefits per the
 
 
 
 
 
financial statements
 
$
11,575,687

 
 
$
9,298,378

 
 
 
 
 
 
Excess contributions refundable
 
9,070
 
 
 
13,638
 
 
 
 
 
 
 
Net assets available for benefits per Form 5500
 
$
11,584,757

 
 
$
9,312,016

The following is a reconciliation of benefits paid to participants per the financial statements for the year ended December 31, 2013 to the Form 5500:
Benefits paid to participants per the financial statements
 
$
682,900

 
 
 
2012 excess contributions refundable
 
13,638
 
 
 
 
2013 excess contributions refundable
 
(9,070
)
 
 
 
Benefits paid to participants per Form 5500
 
$
687,468

NOTE I. EXCESS CONTRIBUTIONS
As of December 31, 2013 and 2012, refunds of employee contributions totaling $9,070 and $13,638, respectively, had been recorded as a liability to certain employees in order to pass the Average Deferral Percentage test under Section 401(a) of the IRC.

15
























SUPPLEMENTAL INFORMATION

















16



The AERC 401(K) Savings Plan and Trust
FORM 5500 SCHEDULE H - ITEM 4(i)
EIN: 34-1747603 Plan #001
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
December 31, 2013
Identity of
 
Description of Investment, Including Maturity Date,
 
 
 
Current
Party Involved
 
Rate of Interest, Collateral and Par or Maturity Value
 
Cost***
 
Value
 
 
 
 
 
 
 
*Prudential
 
Dodge and Cox Stock Fund
 
 
 
$
1,788,420
 
 
 
 
 
 
 
 
*Prudential
 
Vanguard Index Trust 500 Portfolio
 
 
 
1,768,062
 
 
 
 
 
 
 
 
*Prudential
 
Prudential Guaranteed Income Fund
 
 
 
1,618,033
 
                
 
 
 
 
 
 
*Prudential
 
T. Rowe Price Retirement 2020
 
 
 
974,480
 
                
 
 
 
 
 
 
*Prudential
 
T. Rowe Price Growth Stock
 
 
 
841,303
 
 
 
 
 
 
 
 
*Prudential
 
Pimco Total Return Institution
 
 
 
815,043
 
                
 
 
 
 
 
 
*AERC
 
Associated Estates Realty Corporation
 
 
 
710,842
 
                
 
 
 
 
 
 
*Prudential
 
Vanguard Selected Value A
 
 
 
376,865
 
                
 
 
 
 
 
 
*Prudential
 
T. Rowe Price New Horizons
 
 
 
346,432
 
                
 
 
 
 
 
 
*Prudential
 
Thornburg Intern Value R3
 
 
 
344,245
 
                
 
 
 
 
 
 
*Prudential
 
Vanguard Total Intermediate Stock Index
 
 
 
300,687
 
                
 
 
 
 
 
 
*Prudential
 
Loomis Sayles Bond Fund CL I
 
 
 
202,799
 
                
 
 
 
 
 
 
*Prudential
 
T. Rowe Price Retirement 2030
 
 
 
188,610
 
                
 
 
 
 
 
 
*Prudential
 
Oppen Developing Markets A
 
 
 
169,216
 
                
 
 
 
 
 
 
*Prudential
 
Pimco All Asset Institution Fund
 
 
 
166,555
 
                
 
 
 
 
 
 
*Prudential
 
Perkins Small Cap Value
 
 
 
135,100
 
                
 
 
 
 
 
 
*Prudential
 
T. Rowe Price Retirement 2040
 
 
 
117,900
 
                
 
 
 
 
 
 
*Prudential
 
Prudential Day One Income Flex Target
 
 
 
117,553
 
                
 
 
 
 
 
 
*Prudential
 
Buffalo Mid Cap Fund
 
 
 
111,214
 
     
 
 
 
 
 
 
*Prudential
 
Cohen and Steers Realty Fund
 
 
 
65,068
 
                
 
 
 
 
 
 
*Prudential
 
Vanguard Mid Cap Index Fund
 
 
 
53,941
 
             
 
 
 
 
 
 
*Prudential
 
T. Rowe Price Retirement 2010
 
 
 
33,749
 

17



The AERC 401(K) Savings Plan and Trust
FORM 5500 SCHEDULE H - ITEM 4(i)
EIN: 34-1747603 Plan #001
SCHEDULE OF ASSETS (HELD AT END OF YEAR) - (Continued)
December 31, 2013
Identity of
 
Description of Investment, Including Maturity Date,
 
 
 
Current
Party Involved
 
Rate of Interest, Collateral and Par or Maturity Value
 
Cost***
 
Value
 
 
 
 
 
 
 
*Prudential
 
Vanguard Small Cap Index
 
 
 
22,207

 
 
 
 
 
 
 
*Prudential
 
Vanguard Intermediate Term Treasury Fund
 
 
 
9,327

 
 
 
 
 
 
 
*Prudential
 
T. Rowe Price Retirement 2050
 
 
 
9,039

 
 
 
 
 
 
 
*Participant Loans
 
**Participant Loans - 4.25% to 6.00%
 
 
 
298,067

Total
 
 
 
 
 
$
11,584,757


*
Represents a party-in-interest.
 
 
**
Participant loans are considered investments on the Form 5500, but are classified as participant
 
notes receivable on the financial statements.
 
 
***
Historical cost has not been presented, as all investments are participant-directed.

See Report of Independent Registered Public Accounting Firm.

18



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the following individuals have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.
Signature
 
Title
 
Date
 
 
 
 
 
 
 
 
 
 
/s/ Jeffrey I. Friedman
 
Trustee
 
June 17, 2014
Jeffrey I. Friedman
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
/s/ Lou Fatica
 
Trustee
 
June 17, 2014
Lou Fatica
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
/s/ Daniel E. Gold
 
Trustee
 
June 17, 2014
Daniel E. Gold
 
 
 
 
 
 
 
 
 



19