M » Topics » Pension and Supplementary Retirement Plans

This excerpt taken from the M 10-K filed Apr 1, 2009.

Pension and Supplementary Retirement Plans

The Company has a funded defined benefit pension plan (the “Pension Plan”) and an unfunded defined benefit supplementary retirement plan (the “SERP”). The Company accounts for these plans using SFAS No. 87, “Employers’ Accounting for Pensions” (“SFAS 87”), as amended by SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). Under SFAS 158, an employer recognizes the funded status of a defined benefit postretirement plan as an asset or liability on the balance sheet and recognizes changes in that funded status in the year in which the changes occur through comprehensive income. Under SFAS 87, pension expense is recognized on an accrual basis over employees’ approximate service periods. Pension expense calculated under SFAS 87 is generally independent of funding decisions or requirements.

Effective February 4, 2007, the Company adopted the measurement date provision of SFAS 158, which requires the measurement of defined benefit plan assets and obligations to be the date of the Company’s fiscal year-end balance sheet. This required a change in the Company’s measurement date, which was previously December 31.

During 2006, Congress passed the Pension Protection Act of 2006 (the “Act”) with the stated purpose of improving the funding of America’s private pension plans. The Act introduced new funding requirements for defined benefit pension plans, introduces benefit limitations for certain under-funded plans and raises tax deduction limits for contributions. The Act applies to pension plan years beginning after December 31, 2007. Funding requirements for the Pension Plan are determined by government regulations, not SFAS 87 or SFAS 158. No funding contributions were required, and the Company made no funding contributions to the Pension Plan in 2008 or 2007. As of the date of this report, the Company is anticipating making required funding contributions to the Pension Plan totaling approximately $295 million to $370 million prior to January 30, 2010. This includes the initiation of quarterly payments of approximately $30 million and a 2008 Plan year contribution in September 2009 of approximately $175 million to $250 million. Management believes that, with respect to the Company’s current operations, cash on hand and funds from operations, together with its credit facility and other capital resources, will be sufficient to cover the Company’s Pension cash requirements in both the near term and over the longer term.

At January 31, 2009, the Company had an unrecognized actuarial loss of $875 million for the Pension Plan and an unrecognized actuarial gain of $19 million for the SERP. The unrecognized loss for the Pension Plan and the unrecognized gain for the SERP will be recognized as a component of pension expense in future years in accordance with SFAS No. 87, but are not expected to impact 2009 Pension and SERP expense.

 

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The calculation of pension expense and pension liabilities requires the use of a number of assumptions. Changes in these assumptions can result in different expense and liability amounts, and future actual experience may differ significantly from current expectations. The Company believes that the most critical assumptions relate to the long-term rate of return on plan assets (in the case of the Pension Plan), the discount rate used to determine the present value of projected benefit obligations and the weighted average rate of increase of future compensation levels.

The Company has assumed that the Pension Plan’s assets will generate an annual long-term rate of return of 8.75%. The Company develops its long-term rate of return assumption by evaluating input from several professional advisors taking into account the asset allocation of the portfolio and long-term asset class return expectations, as well as long-term inflation assumptions. Pension expense increases or decreases as the expected rate of return on the assets of the Pension Plan decreases or increases, respectively. Lowering the expected long-term rate of return on the Pension Plan’s assets by 0.25% (from 8.75% to 8.50%) would increase the estimated 2009 pension expense by approximately $5 million and raising the expected long-term rate of return on the Pension Plan’s assets by 0.25% (from 8.75% to 9.00%) would decrease the estimated 2009 pension expense by approximately $5 million.

The Company discounted its future pension obligations using a rate of 7.45% at January 31, 2009, compared to 6.25% at February 2, 2008. The discount rate used to determine the present value of the Company’s Pension Plan and SERP obligations is based on a yield curve constructed from a portfolio of high quality corporate debt securities with various maturities. Each year’s expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate for Pension Plan and SERP obligations. Pension liability and future pension expense both increase or decrease as the discount rate is reduced or increased, respectively. Lowering the discount rate by 0.25% (from 7.45% to 7.20%) would increase the projected benefit obligation at January 31, 2009 by approximately $72 million and would increase estimated 2009 pension expense by approximately $5 million. Increasing the discount rate by 0.25% (from 7.45% to 7.70%) would decrease the projected benefit obligation at January 31, 2009 by approximately $70 million and would decrease estimated 2009 pension expense by less than $1 million.

The assumed weighted average rate of increase in future compensation levels was 5.4% at January 31, 2009 and February 2, 2008 for the Pension Plan, and 7.2% at January 31, 2009 and February 2, 2008 for the SERP. The Company develops its increase of future compensation level assumption based on recent experience. Pension liabilities and future pension expense both increase or decrease as the weighted average rate of increase of future compensation levels is increased or decreased, respectively. Increasing or decreasing the assumed weighted average rate of increase of future compensation levels by 0.25% would increase or decrease the projected benefit obligation at January 31, 2009 by approximately $10 million and change estimated 2009 pension expense by approximately $1 million.

These excerpts taken from the M 10-K filed Apr 1, 2008.
Pension and Supplementary Retirement Plans
 
The Company has a funded defined benefit pension plan (the “Pension Plan”) and an unfunded defined benefit supplementary retirement plan (the “SERP”). The Company accounts for these plans using Statement of Financial Accounting Standards (“SFAS”) No. 87, “Employers’ Accounting for Pensions” (“SFAS 87”), as amended by SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). Under SFAS 158, an employer recognizes the funded status of a defined benefit postretirement plan as an asset or liability on the balance sheet and recognizes changes in that funded status in the year in which the changes occur through comprehensive income. Under SFAS 87, pension expense is recognized on an accrual basis over employees’ approximate service periods. Pension expense calculated under SFAS 87 is generally independent of funding decisions or requirements.
 
Effective February 4, 2007, the Company adopted the measurement date provision of SFAS 158, which requires the measurement of defined benefit plan assets and obligations to be the date of the Company’s fiscal year-end balance sheet. This required a change in the Company’s measurement date, which was previously December 31.
 
Funding requirements for the Pension Plan are determined by government regulations, not SFAS 87 or SFAS 158. No funding contributions were required, and the Company made no funding contributions to the Pension Plan in


26


 

2007. The Company made a $100 million voluntary funding contribution to the Pension Plan in 2006. The Company currently anticipates that it will not be required to make any additional contributions to the Pension Plan until January 2010, but may make voluntary funding contributions prior to that date based on the estimate of the Pension Plan’s expected funded status. As of the date of this report, the Company is considering making a voluntary funding contribution to the Pension Plan of approximately $175 million in December 2008.
 
During 2006, Congress passed the Pension Protection Act of 2006 (the “Act”) with the stated purpose of improving the funding of America’s private pension plans. The Act introduced new funding requirements for defined benefit pension plans, introduces benefit limitations for certain under-funded plans and raises tax deduction limits for contributions. The Act applies to pension plan years beginning after December 31, 2007. The Company has preliminarily reviewed the provisions of the Act to determine the impact on the Company. Required funding under the Act will be dependent upon many factors including the Pension Plan’s future funded status including any voluntary funding contributions the Company may choose to make and annual Pension Plan asset returns. Based upon this preliminary review as well as the current funded status of the Pension Plan relative to the Company’s level of annual operating cash flows, the Company does not believe that required contributions under the Act would materially impact the Company’s operating cash flows in any given year.
 
At February 2, 2008, the Company had unrecognized actuarial losses of $276 million for the Pension Plan and $38 million for the SERP. These losses will be recognized as a component of pension expense in future years in accordance with SFAS No. 87.
 
The calculation of pension expense and pension liabilities requires the use of a number of assumptions. Changes in these assumptions can result in different expense and liability amounts, and future actual experience may differ significantly from current expectations. The Company believes that the most critical assumptions relate to the long-term rate of return on plan assets (in the case of the Pension Plan), the discount rate used to determine the present value of projected benefit obligations and the weighted average rate of increase of future compensation levels.
 
The Company has assumed that the Pension Plan’s assets will generate an annual long-term rate of return of 8.75% since 2004. The Company develops its long-term rate of return assumption by evaluating input from several professional advisors taking into account the asset allocation of the portfolio and long-term asset class return expectations, as well as long-term inflation assumptions. Pension expense increases or decreases as the expected rate of return on the assets of the Pension Plan decreases or increases, respectively. Lowering the expected long-term rate of return on the Pension Plan’s assets by 0.25% (from 8.75% to 8.50%) would increase the estimated 2008 pension expense by approximately $6 million and raising the expected long-term rate of return on the Pension Plan’s assets by 0.25% (from 8.75% to 9.00%) would decrease the estimated 2008 pension expense by approximately $6 million.
 
The Company discounted its future pension obligations using a rate of 6.25% at February 2, 2008, compared to 5.85% at December 31, 2006. The Company determines the appropriate discount rate with reference to the current yield earned on an index of investment-grade long-term bonds and the impact of a yield curve analysis to account for the difference in duration between the long-term bonds and the Pension Plan’s and SERP’s estimated payments. Pension liability and future pension expense both increase or decrease as the discount rate is reduced or increased, respectively. Lowering the discount rate by 0.25% (from 6.25% to 6.0%) would increase the projected benefit obligation at February 2, 2008 by approximately $102 million and would increase estimated 2008 pension expense by approximately $13 million. Increasing the discount rate by 0.25% (from 6.25% to 6.50%) would decrease the projected benefit obligation at February 2, 2008 by approximately $80 million and would decrease estimated 2008 pension expense by approximately $6 million.


27


 

The assumed weighted average rate of increase in future compensation levels was 5.4% at February 2, 2008 and December 31, 2006 for the Pension Plan, and 7.2% at February 2, 2008 and December 31, 2006 for the SERP. The Company develops its increase of future compensation level assumption based on recent experience. Pension liabilities and future pension expense both increase or decrease as the weighted average rate of increase of future compensation levels is increased or decreased, respectively. Increasing or decreasing the assumed weighted average rate of increase of future compensation levels by 0.25% would increase or decrease the projected benefit obligation at February 2, 2008 by approximately $12 million and change estimated 2008 pension expense by approximately $3 million.
 
Pension
and Supplementary Retirement Plans



 



The Company has a funded defined benefit pension plan (the
“Pension Plan”) and an unfunded defined benefit
supplementary retirement plan (the “SERP”). The
Company accounts for these plans using Statement of Financial
Accounting Standards (“SFAS”) No. 87,
“Employers’ Accounting for Pensions”
(“SFAS 87”), as amended by
SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement
Plans – an amendment of FASB Statements No. 87,
88, 106, and 132(R)” (“SFAS 158”). Under
SFAS 158, an employer recognizes the funded status of a
defined benefit postretirement plan as an asset or liability on
the balance sheet and recognizes changes in that funded status
in the year in which the changes occur through comprehensive
income. Under SFAS 87, pension expense is recognized on an
accrual basis over employees’ approximate service periods.
Pension expense calculated under SFAS 87 is generally
independent of funding decisions or requirements.


 



Effective February 4, 2007, the Company adopted the
measurement date provision of SFAS 158, which requires the
measurement of defined benefit plan assets and obligations to be
the date of the Company’s fiscal year-end balance sheet.
This required a change in the Company’s measurement date,
which was previously December 31.


 



Funding requirements for the Pension Plan are determined by
government regulations, not SFAS 87 or SFAS 158. No
funding contributions were required, and the Company made no
funding contributions to the Pension Plan in





26





 






2007. The Company made a $100 million voluntary funding
contribution to the Pension Plan in 2006. The Company currently
anticipates that it will not be required to make any additional
contributions to the Pension Plan until January 2010, but
may make voluntary funding contributions prior to that date
based on the estimate of the Pension Plan’s expected funded
status. As of the date of this report, the Company is
considering making a voluntary funding contribution to the
Pension Plan of approximately $175 million in December 2008.


 



During 2006, Congress passed the Pension Protection Act of 2006
(the “Act”) with the stated purpose of improving the
funding of America’s private pension plans. The Act
introduced new funding requirements for defined benefit pension
plans, introduces benefit limitations for certain under-funded
plans and raises tax deduction limits for contributions. The Act
applies to pension plan years beginning after December 31,
2007. The Company has preliminarily reviewed the provisions of
the Act to determine the impact on the Company. Required funding
under the Act will be dependent upon many factors including the
Pension Plan’s future funded status including any voluntary
funding contributions the Company may choose to make and annual
Pension Plan asset returns. Based upon this preliminary review
as well as the current funded status of the Pension Plan
relative to the Company’s level of annual operating cash
flows, the Company does not believe that required contributions
under the Act would materially impact the Company’s
operating cash flows in any given year.


 



At February 2, 2008, the Company had unrecognized actuarial
losses of $276 million for the Pension Plan and
$38 million for the SERP. These losses will be recognized
as a component of pension expense in future years in accordance
with SFAS No. 87.


 



The calculation of pension expense and pension liabilities
requires the use of a number of assumptions. Changes in these
assumptions can result in different expense and liability
amounts, and future actual experience may differ significantly
from current expectations. The Company believes that the most
critical assumptions relate to the long-term rate of return on
plan assets (in the case of the Pension Plan), the discount rate
used to determine the present value of projected benefit
obligations and the weighted average rate of increase of future
compensation levels.


 



The Company has assumed that the Pension Plan’s assets will
generate an annual long-term rate of return of 8.75% since 2004.
The Company develops its long-term rate of return assumption by
evaluating input from several professional advisors taking into
account the asset allocation of the portfolio and long-term
asset class return expectations, as well as long-term inflation
assumptions. Pension expense increases or decreases as the
expected rate of return on the assets of the Pension Plan
decreases or increases, respectively. Lowering the expected
long-term rate of return on the Pension Plan’s assets by
0.25% (from 8.75% to 8.50%) would increase the estimated 2008
pension expense by approximately $6 million and raising the
expected long-term rate of return on the Pension Plan’s
assets by 0.25% (from 8.75% to 9.00%) would decrease the
estimated 2008 pension expense by approximately $6 million.


 



The Company discounted its future pension obligations using a
rate of 6.25% at February 2, 2008, compared to 5.85% at
December 31, 2006. The Company determines the appropriate
discount rate with reference to the current yield earned on an
index of investment-grade long-term bonds and the impact of a
yield curve analysis to account for the difference in duration
between the long-term bonds and the Pension Plan’s and
SERP’s estimated payments. Pension liability and future
pension expense both increase or decrease as the discount rate
is reduced or increased, respectively. Lowering the discount
rate by 0.25% (from 6.25% to 6.0%) would increase the projected
benefit obligation at February 2, 2008 by approximately
$102 million and would increase estimated 2008 pension
expense by approximately $13 million. Increasing the
discount rate by 0.25% (from 6.25% to 6.50%) would decrease the
projected benefit obligation at February 2, 2008 by
approximately $80 million and would decrease estimated 2008
pension expense by approximately $6 million.





27





 






The assumed weighted average rate of increase in future
compensation levels was 5.4% at February 2, 2008 and
December 31, 2006 for the Pension Plan, and 7.2% at
February 2, 2008 and December 31, 2006 for the SERP.
The Company develops its increase of future compensation level
assumption based on recent experience. Pension liabilities and
future pension expense both increase or decrease as the weighted
average rate of increase of future compensation levels is
increased or decreased, respectively. Increasing or decreasing
the assumed weighted average rate of increase of future
compensation levels by 0.25% would increase or decrease the
projected benefit obligation at February 2, 2008 by
approximately $12 million and change estimated 2008 pension
expense by approximately $3 million.


 




This excerpt taken from the M 10-K filed Apr 4, 2007.
Pension and Supplementary Retirement Plans
 
In September 2006, the FASB issued SFAS 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”), which requires, among other things, an employer to recognize the funded status of a defined benefit postretirement plan as an asset or liability on the balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The recognition and disclosure provisions of this statement were adopted by the Company for fiscal year 2006. Effective February 4, 2007, the Company adopted the remaining provision of SFAS 158, which requires the measurement of defined benefit plan assets and obligations to be the date of the Company’s fiscal year-end balance sheet. This required a change in the Company’s measurement date, which was previously December 31.
 
The Company has a funded defined benefit pension plan (the “Pension Plan”) and an unfunded defined benefit supplementary retirement plan (the “SERP”). The Company accounts for these plans using SFAS No. 87, “Employers’ Accounting for Pensions” (“SFAS 87”), as amended by SFAS No. 158. Under SFAS 87 and SFAS 158, pension expense is recognized on an accrual basis over employees’ approximate service periods. Pension expense calculated under SFAS 87 and SFAS 158 is generally independent of funding decisions or requirements. The Company anticipates that pension expense and other retirement costs relating to continuing operations will decrease by approximately $20 million in 2007, compared to 2006.
 
Funding requirements for the Pension Plan are determined by government regulations, not SFAS 87 or SFAS 158. Although no funding contributions were required, the Company made a $100 million voluntary funding contribution to the Pension Plan in 2006 and a $136 million voluntary funding contribution to the Pension Plan in 2005. The Company currently anticipates that it will not be required to make any additional contributions to the Pension Plan until 2009. As of the date of this report, the Company is considering making a voluntary funding contribution to the Pension Plan of $180 million prior to February 2, 2008.
 
During 2006, Congress passed the Pension Protection Act of 2006 (the “Act”) with the stated purpose of improving the funding of America’s private pension plans. The Act introduces new funding requirements for defined benefit pension plans, introduces benefit limitations for certain under-funded plans and raises tax deduction limits for contributions. The Act applies to pension plan years beginning after December 31, 2007. The Company has preliminarily reviewed the provisions of the Act to determine the impact on the Company. Required funding under the Act will be dependent upon many factors including the Pension Plan’s future funded status including any voluntary funding contributions the Company may choose to make and annual Pension Plan asset returns. Based upon this preliminary review as well as the current funded status of the Pension Plan relative to the Company’s level of annual operating cash flows, the Company does not believe


24


Table of Contents

that required contributions under the Act would materially impact the Company’s operating cash flows in any given year.
 
At February 3, 2007, the Company had unrecognized actuarial losses of $296 million for the Pension Plan and $75 million for the SERP. These losses will be recognized as a component of pension expense in future years in accordance with SFAS No. 158.
 
The calculation of pension expense and pension liabilities requires the use of a number of assumptions. Changes in these assumptions can result in different expense and liability amounts, and future actual experience may differ significantly from current expectations. The Company believes that the most critical assumptions relate to the long-term rate of return on plan assets (in the case of the Pension Plan), the discount rate used to determine the present value of projected benefit obligations and the weighted average rate of increase of future compensation levels.
 
The Company has assumed that the Pension Plan’s assets will generate an annual long-term rate of return of 8.75% since 2004. The Company develops its long-term rate of return assumption by evaluating input from several professional advisors taking into account the asset allocation of the portfolio and long-term asset class return expectations, as well as long-term inflation assumptions. Pension expense increases or decreases as the expected rate of return on the assets of the Pension Plan decreases or increases, respectively. Lowering the expected long-term rate of return on the Pension Plan’s assets by 0.25% (from 8.75% to 8.50%) would increase the estimated 2007 pension expense by approximately $6 million and raising the expected long-term rate of return on the Pension Plan’s assets by 0.25% (from 8.75% to 9.00%) would decrease the estimated 2007 pension expense by approximately $6 million.
 
The Company discounted its future pension obligations using a rate of 5.85% at December 31, 2006, compared to 5.70% at December 31, 2005. The Company determines the appropriate discount rate with reference to the current yield earned on an index of investment-grade long-term bonds and the impact of a yield curve analysis to account for the difference in duration between the long-term bonds and the Pension Plan’s and SERP’s estimated payments. Pension liability and future pension expense both increase or decrease as the discount rate is reduced or increased, respectively. Lowering the discount rate by 0.25% (from 5.85% to 5.60%) would increase the projected benefit obligation at February 3, 2007 by approximately $109 million and would increase estimated 2007 pension expense by approximately $15 million. Increasing the discount rate by 0.25% (from 5.85% to 6.10%) would decrease the projected benefit obligation at February 3, 2007 by approximately $105 million and would decrease estimated 2007 pension expense by approximately $12 million.
 
The assumed weighted average rate of increase in future compensation levels was 5.4% as of December 31, 2006 and December 31, 2005 for the Pension Plan, and 7.2% as of December 31, 2006 and December 31, 2005 for the SERP. The Company develops its increase of future compensation level assumption based on recent experience. Pension liabilities and future pension expense both increase or decrease as the weighted average rate of increase of future compensation levels is increased or decreased, respectively. Increasing or decreasing the assumed weighted average rate of increase of future compensation levels by 0.25% would increase or decrease the projected benefit obligation at February 3, 2007 by approximately $13 million and change estimated 2007 pension expense by approximately $3 million.
 
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