Annual report pursuant to Section 13 and 15(d)

Postretirement Health Care and Life Insurance Benefits

v3.7.0.1
Postretirement Health Care and Life Insurance Benefits
12 Months Ended
Jan. 28, 2017
Pension and Other Postretirement Benefit Expense [Abstract]  
Postretirement Health Care and Life Insurance Benefits
Postretirement Health Care and Life Insurance Benefits
In addition to pension and other supplemental benefits, certain retired employees currently are provided with specified health care and life insurance benefits. Eligibility requirements for such benefits vary by division and subsidiary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.
In 2016, the Company changed the method used to estimate the service and interest cost components of net periodic benefit costs for the postretirement obligations. The new method uses a full yield curve approach in the estimation of these components of net periodic benefit costs. Under this approach, the Company applies discounting using individual spot rates from the yield curve composed of the rates of return from a portfolio of high quality corporate debt securities available at the measurement date. These spot rates align to each of the accumulated postretirement obligation and service cost cash flows. Historically, the Company estimated the service and interest cost components using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligations.
The Company made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs. The Company accounted for this change as a change in estimate prospectively starting in 2016. The discount rate that would have been used to measure the 2016 service and interest cost components of net periodic benefit cost as of the beginning of the year under the single weighted-average discount rate was 4.15%. The 2016 reduction in service cost and interest cost for the postretirement obligations associated with this change was approximately $2 million.
The following provides a reconciliation of benefit obligations, plan assets, and funded status of the postretirement obligations as of January 28, 2017 and January 30, 2016:
 
 
2016
 
2015
 
(millions)
Change in accumulated postretirement benefit obligation
 
 
 
Accumulated postretirement benefit obligation, beginning of year
$
212

 
$
243

Service cost

 

Interest cost
6

 
8

Actuarial gain
(13
)
 
(22
)
Medicare Part D subsidy
1

 
1

Benefits paid
(20
)
 
(18
)
Accumulated postretirement benefit obligation, end of year
186

 
212

Change in plan assets
 
 
 
Fair value of plan assets, beginning of year

 

Company contributions
20

 
18

Benefits paid
(20
)
 
(18
)
Fair value of plan assets, end of year

 

Funded status at end of year
$
(186
)
 
$
(212
)
Amounts recognized in the Consolidated Balance Sheets at
January 28, 2017 and January 30, 2016
 
 
 
Accounts payable and accrued liabilities
$
(18
)
 
$
(20
)
Other liabilities
(168
)
 
(192
)
 
$
(186
)
 
$
(212
)
Amounts recognized in accumulated other comprehensive loss at
January 28, 2017 and January 30, 2016
 
 
 
Net actuarial gain
$
(31
)
 
$
(22
)


Net postretirement benefit costs and other amounts recognized in other comprehensive loss included the following actuarially determined components:
 
 
2016
 
2015
 
2014
 
(millions)
Net Periodic Postretirement Benefit Cost
 
 
 
 
 
Service cost
$

 
$

 
$

Interest cost
6

 
8

 
10

Amortization of net actuarial gain
(4
)
 

 
(5
)
Amortization of prior service cost

 

 

 
2

 
8

 
5

Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Loss
 
 
 
 
 
Net actuarial (gain) loss
(13
)
 
(22
)
 
30

Amortization of net actuarial gain
4

 

 
5

Amortization of prior service cost

 

 

 
(9
)
 
(22
)
 
35

Total recognized
$
(7
)
 
$
(14
)
 
$
40


The estimated net actuarial gain that will be amortized from accumulated other comprehensive loss into net periodic postretirement benefit cost during 2017 is $4 million.
The following weighted average assumption was used to determine the accumulated postretirement benefit obligations at January 28, 2017 and January 30, 2016:
 
 
2016
 
2015
Discount rate
3.99
%
 
4.15
%


The following weighted average assumption was used to determine the net postretirement benefit costs for the postretirement obligations:
 
 
2016
 
2015
 
2014
Discount rate used to measure interest cost
3.14
%
 
3.55
%
 
4.50
%


The postretirement benefit obligation assumptions are evaluated annually and updated as necessary.
The discount rate used to determine the present value of the Company’s accumulated postretirement benefit 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 the accumulated postretirement benefit obligations.
The future medical benefits provided by the Company for certain employees are based on a fixed amount per year of service, and the accumulated postretirement benefit obligation is not affected by increases in health care costs. However, the future medical benefits provided by the Company for certain other employees are affected by increases in health care costs.
The following provides the assumed health care cost trend rates related to the Company’s accumulated postretirement benefit obligations at January 28, 2017 and January 30, 2016:
 
 
2016
 
2015
Health care cost trend rates assumed for next year
6.15% - 9.75%
 
6.25% - 10.0%
Rates to which the cost trend rate is assumed to decline (the ultimate trend rate)
5.0%
 
5.0%
Year that the rate reaches the ultimate trend rate
2027
 
2027


The assumed health care cost trend rates have an impact on the amounts reported for the accumulated postretirement benefit obligations. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:
 
 
1 – Percentage
Point Increase
 
1 – Percentage
Point Decrease
 
(millions)
Effect on total of service and interest cost
$

 
$

Effect on accumulated postretirement benefit obligations
$
11

 
$
(10
)


The following table reflects the benefit payments estimated to be funded by the Company and paid from the accumulated postretirement benefit obligations and estimated federal subsidies expected to be received under the Medicare Prescription Drug Improvement and Modernization Act of 2003:
 
 
Expected
Benefit
Payments
 
Expected
Federal
Subsidy
 
(millions)
Fiscal Year
 
 
 
2017
$
17

 
$
1

2018
17

 
1

2019
16

 
1

2020
16

 

2021
15

 

2022-2026
63

 
1