Annual report pursuant to Section 13 and 15(d)

Retirement Plans

v3.21.1
Retirement Plans
12 Months Ended
Jan. 30, 2021
Pension And Other Postretirement Benefit Expense [Abstract]  
Retirement Plans

 

10.

Retirement Plans

The Company has defined contribution plans which cover substantially all employees who work 1,000 hours or more in a year. In addition, the Company has a funded defined benefit plan (“Pension Plan”) and an unfunded defined

benefit supplementary retirement plan (“SERP”), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.

In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided through defined contribution plans.

Retirement expenses, excluding settlement charges, included the following components:

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

 

 

 

 

(millions)

 

 

 

 

 

401(k) Qualified Defined Contribution Plan

 

$

68

 

 

$

96

 

 

$

96

 

Non-Qualified Defined Contribution Plan

 

 

1

 

 

 

2

 

 

 

1

 

Pension Plan

 

 

(73

)

 

 

(54

)

 

 

(64

)

Supplementary Retirement Plan

 

 

26

 

 

 

30

 

 

 

31

 

 

 

$

22

 

 

$

74

 

 

$

64

 

 

The Company estimates the service and interest cost components of net periodic benefit costs for the Pension Plan and SERP. This 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 projected benefit obligation and service cost cash flows.

Defined Contribution Plans

The Company has a qualified plan that permits participating associates to defer eligible compensation up to the maximum limits allowable under the Internal Revenue Code. Beginning January 1, 2014, the Company has a non-qualified plan which permits participating associates to defer eligible compensation above the limits of the qualified plan. The Company contributes a matching percentage of employee contributions under both the qualified and non-qualified plans. Effective January 1, 2014, the Company's matching contribution to the qualified plan was enhanced for all participating employees, with limited exceptions. Prior to January 1, 2014, the matching contribution rate under the qualified plan was higher for those employees not eligible for the Pension Plan than for employees eligible for the Pension Plan.

The liability related to the qualified plan matching contribution, which is reflected in accounts payable and accrued liabilities on the Consolidated Balance Sheets, was $74 million at January 30, 2021 and $104 million at February 1, 2020. Expense related to matching contributions for the qualified plan amounted to $68 million for 2020 and $96 million for 2019 and 2018.

At January 30, 2021 and February 1, 2020, the liability under the non-qualified plan, which is reflected in other liabilities on the Consolidated Balance Sheets, was $36 million and $34 million, respectively. The liability related to the non-qualified plan matching contribution, which is reflected in accounts payable and accrued liabilities on the Consolidated Balance Sheets, was $1 million at January 30, 2021, and $2 million at February 1, 2020. Expense related to matching contributions for the non-qualified plan amounted to $1 million for 2020, $2 million for 2019 and $1 million for 2018. In connection with the non- qualified plan, the Company had mutual fund investments at January 30, 2021 and February 1, 2020 of $36 million and $34 million, respectively, which are included in prepaid expenses and other current assets on the Consolidated Balance Sheets.

Pension Plan

The following provides a reconciliation of benefit obligations, plan assets, and funded status of the Pension Plan as of January 30, 2021 and February 1, 2020:

 

 

 

2020

 

 

2019

 

 

 

(millions)

 

Change in projected benefit obligation

 

 

 

 

 

 

 

 

Projected benefit obligation, beginning of year

 

$

3,321

 

 

$

3,011

 

Service cost

 

 

4

 

 

 

5

 

Interest cost

 

 

66

 

 

 

103

 

Actuarial loss

 

 

12

 

 

 

463

 

Benefits paid

 

 

(373

)

 

 

(261

)

Projected benefit obligation, end of year

 

 

3,030

 

 

 

3,321

 

Changes in plan assets

 

 

 

 

 

 

 

 

Fair value of plan assets, beginning of year

 

 

3,359

 

 

 

3,018

 

Actual return on plan assets

 

 

373

 

 

 

602

 

Company contributions

 

 

 

 

 

 

Benefits paid

 

 

(373

)

 

 

(261

)

Fair value of plan assets, end of year

 

 

3,359

 

 

 

3,359

 

Funded status at end of year

 

$

329

 

 

$

38

 

Amounts recognized in the Consolidated Balance Sheets at January 30, 2021 and

   February 1, 2020

 

 

 

 

 

 

 

 

Other assets

 

$

329

 

 

$

38

 

Amounts recognized in accumulated other comprehensive loss at January 30, 2021 and

   February 1, 2020

 

 

 

 

 

 

 

 

Net actuarial loss

 

$

794

 

 

$

1,086

 

    

Net pension costs, settlement charges and other amounts recognized in other comprehensive loss for the Pension Plan included the following actuarially determined components:

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(millions)

 

Net Periodic Pension Cost

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

4

 

 

$

5

 

 

$

5

 

Interest cost

 

 

66

 

 

 

103

 

 

 

109

 

Expected return on assets

 

 

(183

)

 

 

(191

)

 

 

(206

)

Amortization of net actuarial loss

 

 

40

 

 

 

29

 

 

 

28

 

Amortization of prior service credit

 

 

 

 

 

 

 

 

 

 

 

 

(73

)

 

 

(54

)

 

 

(64

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement charges

 

 

74

 

 

 

45

 

 

 

78

 

Other Changes in Plan Assets and Projected Benefit Obligation

   Recognized in Other Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial (gain) loss

 

 

(178

)

 

 

51

 

 

 

223

 

Amortization of net actuarial loss

 

 

(40

)

 

 

(29

)

 

 

(28

)

Settlement charges

 

 

(74

)

 

 

(45

)

 

 

(78

)

 

 

 

(292

)

 

 

(23

)

 

 

117

 

Total recognized

 

$

(291

)

 

$

(32

)

 

$

131

 

 

The estimated net actuarial loss for the Pension Plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2021 is $35 million.

The following weighted average assumptions were used to determine the projected benefit obligations for the Pension Plan at January 30, 2021 and February 1, 2020:

 

 

 

2020

 

 

2019

 

Discount rate

 

 

2.43

%

 

 

2.83

%

Rate of compensation increases

 

 

3.45

%

 

 

3.25

%

Cash balance plan interest crediting rate

 

 

5.00

%

 

 

5.00

%

 

The following weighted average assumptions were used to determine the net periodic pension cost for the Pension Plan:

 

 

 

2020

 

 

2019

 

 

2018

 

Discount rate used to measure service cost

 

2.35% - 2.96%

 

 

 

4.09

%

 

3.77% - 4.46%

 

Discount rate used to measure interest cost

 

1.65% - 2.46%

 

 

 

3.67

%

 

3.39% - 4.06%

 

Expected long-term return on plan assets

 

 

6.25

%

 

 

6.50

%

 

 

6.75

%

Rate of compensation increases

 

 

3.25

%

 

 

4.00

%

 

 

4.00

%

Cash balance plan interest crediting rate

 

 

5.00

%

 

 

5.00

%

 

 

5.00

%

 

The Pension Plan’s assumptions are evaluated annually, and at interim re-measurements if required, and updated as necessary. Due to settlement accounting and re-measurements during 2020 and 2018, the discount rate used to measure service cost and the discount rate used to measure interest cost varied between periods. The table above shows the range of rates used to determine net periodic expense for the Pension Plan.

The discount rate used to determine the present value of the projected benefit obligation for the Pension Plan 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 projected benefit obligation.

The Company develops its expected long-term rate of return on plan asset 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. Expected returns for each major asset class are considered along with their volatility and the expected correlations among them. These expectations are based upon historical relationships as well as forecasts of how future returns may vary from historical returns. Returns by asset class and correlations among asset classes are combined using the target asset allocation to derive an expected return for the portfolio as a whole. Long- term historical returns of the portfolio are also considered. Portfolio returns are calculated net of all expenses, therefore, the Company also analyzes expected costs and expenses, including investment management fees, administrative expenses, Pension Benefit Guaranty Corporation premiums and other costs and expenses. As of January 30, 2021, the Company lowered the assumed annual long-term rate of return for the Pension Plan's assets from 6.25% to 5.75% based on expected future returns on the portfolio of assets.

The assets of the Pension Plan are managed by investment specialists with the primary objectives of payment of benefit obligations to Plan participants and an ultimate realization of investment returns over longer periods in excess of inflation. The Company employs a total return investment approach whereby a mix of domestic and foreign equity securities, fixed income securities and other investments is used to maximize the long-term return on the assets of the Pension Plan for a prudent level of risk. Risks are mitigated through asset diversification and the use of multiple investment managers. The target allocation for plan assets is currently 21% equity securities, 74% debt securities, 2% real estate and 3% private equities.

The Company generally employs investment managers to specialize in a specific asset class. These managers are chosen and monitored with the assistance of professional advisors, using criteria that include organizational structure, investment philosophy, investment process, performance compared to market benchmarks and peer groups.

The Company periodically conducts an analysis of the behavior of the Pension Plan’s assets and liabilities under various economic and interest rate scenarios to ensure that the long-term target asset allocation is appropriate given the liabilities.

The fair values of the Pension Plan assets as of January 30, 2021, excluding interest and dividend receivables and pending investment purchases and sales, by asset category are as follows:

 

 

 

Fair Value

Measurements

 

 

 

 

 

 

 

Quoted Prices in

 

 

Significant

 

 

Significant

 

 

 

 

 

 

 

Active Markets for

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Identical Assets

 

 

Inputs

 

 

Inputs

 

 

 

Total

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

 

 

 

 

 

(millions)

 

 

 

 

 

 

 

 

 

Short term investments

 

$

3

 

 

$

 

 

$

3

 

 

$

 

Money market funds

 

 

136

 

 

 

136

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. pooled funds

 

 

356

 

 

 

356

 

 

 

 

 

 

 

International pooled funds (a)

 

 

333

 

 

 

37

 

 

 

 

 

 

 

Fixed income securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

 

 

270

 

 

 

 

 

 

270

 

 

 

 

Other Government bonds

 

 

63

 

 

 

 

 

 

63

 

 

 

 

Corporate bonds

 

 

1,609

 

 

 

 

 

 

1,609

 

 

 

 

Mortgage-backed securities

 

 

11

 

 

 

 

 

 

11

 

 

 

 

Asset-backed securities

 

 

1

 

 

 

 

 

 

1

 

 

 

 

Pooled funds

 

 

271

 

 

 

271

 

 

 

 

 

 

 

Other types of investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate (a)

 

 

31

 

 

 

 

 

 

 

 

 

 

Private equity (a)

 

 

160

 

 

 

 

 

 

 

 

 

 

Derivatives in a positive position

 

 

8

 

 

 

 

 

 

8

 

 

 

 

Derivatives in a negative position

 

 

(4

)

 

 

(4

)

 

 

 

 

 

 

Total

 

$

3,248

 

 

$

796

 

 

$

1,965

 

 

$

 

 

(a)

Certain investments that are measured at fair value using the net asset value per share as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.

The fair values of the Pension Plan assets as of February 1, 2020, excluding interest and dividend receivables and pending investment purchases and sales, by asset category are as follows:

 

 

 

Fair Value Measurements

 

 

 

 

 

 

 

Quoted Prices in

 

 

Significant

 

 

Significant

 

 

 

 

 

 

 

Active Markets for

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Identical Assets

 

 

Inputs

 

 

Inputs

 

 

 

Total

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

 

(millions)

 

Money market funds

 

$

37

 

 

$

37

 

 

$

 

 

$

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. stocks

 

 

122

 

 

 

122

 

 

 

 

 

 

 

U.S. pooled funds

 

 

474

 

 

 

474

 

 

 

 

 

 

 

International pooled funds (a)

 

 

357

 

 

 

82

 

 

 

 

 

 

 

Fixed income securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury bonds

 

 

58

 

 

 

 

 

 

58

 

 

 

 

Other Government bonds

 

 

61

 

 

 

 

 

 

61

 

 

 

 

Agency backed bonds

 

 

13

 

 

 

 

 

 

13

 

 

 

 

Corporate bonds

 

 

615

 

 

 

 

 

 

615

 

 

 

 

Mortgage-backed securities

 

 

23

 

 

 

 

 

 

23

 

 

 

 

Asset-backed securities

 

 

10

 

 

 

 

 

 

10

 

 

 

 

Pooled funds

 

 

1,442

 

 

 

1,442

 

 

 

 

 

 

 

Other types of investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate (a)

 

 

37

 

 

 

 

 

 

 

 

 

 

Private equity (a)

 

 

167

 

 

 

 

 

 

 

 

 

 

Derivatives in a positive position

 

 

4

 

 

 

 

 

 

4

 

 

 

 

Derivatives in a negative position

 

 

(6

)

 

 

 

 

 

(6

)

 

 

 

Total

 

$

3,414

 

 

$

2,157

 

 

$

778

 

 

$

 

 

(a)

Certain investments that are measured at fair value using the net asset value per share as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.

Corporate bonds consist primarily of investment grade bonds of U.S. issuers from diverse industries.

The fair value of certain pooled funds including equity securities, real estate and private equity investments represents the reported net asset value of shares or underlying assets of the investment as a practical expedient to estimate fair value. International equity pooled funds seek to provide long-term capital growth and income by investing in equity securities of non-U.S. companies located both in developed and emerging markets. There are generally no redemption restrictions or unfunded commitments related to these equity securities.

Real estate investments include several funds which seek risk-adjusted return by providing a stable, income-driven rate of return over the long term with high potential for growth of net investment income and appreciation of value. The real estate investments are diversified across property types and geographical areas primarily in the United States of America. Private equity investments have an objective of realizing aggregate long-term returns in excess of those available from investments in the public equity markets. Private equity investments generally consist of limited partnerships in the United States of America, Europe and Asia. Private equity and real estate investments are valued using fair values per the most recent financial reports provided by the investment sponsor, adjusted as appropriate for any lag between the date of the financial reports and the Company’s reporting date.

Due to the nature of the underlying assets of the real estate and private equity investments, changes in market conditions and the economic environment may significantly impact the net asset value of these investments and, consequently, the fair value of the Pension Plan’s investments. These investments are redeemable at net asset value to the extent provided in the documentation governing the investments. However, these redemption rights may be restricted in accordance with the governing documents. Redemption of these investments is subject to restrictions including lock-up periods where no redemptions are allowed, restrictions on redemption frequency and advance notice periods for redemptions. As January 30, 2021 and February 1, 2020, certain of these investments are generally subject to lock-up periods, ranging from one to eight years, certain of these investments are subject to restrictions on redemption frequency,

ranging from daily to weekly, and certain of these investments are subject to advance notice requirements. As of January 30, 2021 and February 1, 2020, the Pension Plan had unfunded commitments related to certain of these investments totaling $39 million and $43 million, respectively.

The Company does not anticipate making funding contributions to the Pension Plan in 2021.

The following benefit payments are estimated to be paid from the Pension Plan:

 

 

 

(millions)

 

Fiscal year

 

 

 

 

2021

 

$

298

 

2022

 

 

250

 

2023

 

 

236

 

2024

 

 

223

 

2025

 

 

210

 

2026-2030

 

 

896

 

 

Supplementary Retirement Plan

The following provides a reconciliation of benefit obligations, plan assets and funded status of the supplementary retirement plan as of January 30, 2021 and February 1, 2020:

 

 

 

2020

 

 

2019

 

 

 

(millions)

 

Change in projected benefit obligation

 

 

 

 

 

 

 

 

Projected benefit obligation, beginning of year

 

$

681

 

 

$

644

 

Service cost

 

 

 

 

 

 

Interest cost

 

 

14

 

 

 

21

 

Actuarial loss

 

 

42

 

 

 

87

 

Benefits paid

 

 

(64

)

 

 

(71

)

Projected benefit obligation, end of year

 

 

673

 

 

 

681

 

Change in plan assets

 

 

 

 

 

 

 

 

Fair value of plan assets, beginning of year

 

 

 

 

 

 

Company contributions

 

 

64

 

 

 

71

 

Benefits paid

 

 

(64

)

 

 

(71

)

Fair value of plan assets, end of year

 

 

 

 

 

 

Funded status at end of year

 

$

(673

)

 

$

(681

)

Amounts recognized in the Consolidated Balance Sheets at January 30, 2021 and

   February 1, 2020

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

(49

)

 

$

(55

)

Other liabilities

 

 

(624

)

 

 

(626

)

 

 

$

(673

)

 

$

(681

)

Amounts recognized in accumulated other comprehensive loss at January 30, 2021 and February 1, 2020

 

 

 

 

 

 

 

 

Net actuarial loss

 

$

301

 

 

$

283

 

Prior service cost

 

 

6

 

 

 

6

 

 

 

$

307

 

 

$

289

 

 

 

The accumulated benefit obligation for the supplementary retirement plan was $673 million as of January 30, 2021 and $681 million as of February 1, 2020.

Net pension costs, settlement charges and other amounts recognized in other comprehensive loss for the supplementary retirement plan included the following actuarially determined components:

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(millions)

 

Net Periodic Pension Cost

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

 

 

$

 

 

$

 

Interest cost

 

 

14

 

 

 

21

 

 

 

23

 

Amortization of net actuarial loss

 

 

12

 

 

 

9

 

 

 

7

 

Amortization of prior service cost

 

 

 

 

 

 

 

 

1

 

 

 

 

26

 

 

 

30

 

 

 

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Settlement charges

 

 

10

 

 

 

13

 

 

 

10

 

Other Changes in Plan Assets and Projected Benefit Obligation

   Recognized in Other Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

 

Net actuarial loss (gain)

 

 

40

 

 

 

87

 

 

 

(9

)

Amortization of net actuarial loss

 

 

(12

)

 

 

(9

)

 

 

(7

)

Amortization of prior service cost

 

 

 

 

 

 

 

 

(1

)

Settlement charges

 

 

(10

)

 

 

(13

)

 

 

(10

)

 

 

 

18

 

 

 

65

 

 

 

(27

)

Total recognized

 

$

54

 

 

$

108

 

 

$

14

 

  

The following weighted average assumption was used to determine the projected benefit obligations for the supplementary retirement plan at January 30, 2021 and February 1, 2020:

 

 

 

2020

 

 

2019

 

Discount rate

 

 

2.51

%

 

 

2.89

%

 

The following weighted average assumption was used to determine net pension costs for the supplementary retirement plan:

 

 

 

2020

 

2019

 

2018

Discount rate used to measure interest cost

 

1.65% - 2.44%

 

2.65% - 3.69%

 

3.39% - 4.09%

 

The supplementary retirement plan’s assumptions are evaluated annually, and at interim re-measurements if required, and updated as necessary. Due to settlement accounting and re-measurements during 2020, 2019 and 2018, the discount rate used to measure interest cost varied between periods. The table above shows the range of rates used to determine net periodic expense for the supplementary retirement plan.

The discount rate used to determine the present value of the projected benefit obligation for the supplementary retirement plan 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 projected benefit obligation.

The following benefit payments are estimated to be funded by the Company and paid from the supplementary retirement plan:

 

 

 

(millions)

 

Fiscal year

 

 

 

 

2021

 

$

49

 

2022

 

 

49

 

2023

 

 

47

 

2024

 

 

44

 

2025

 

 

44

 

2026-2030

 

 

200