Annual report pursuant to Section 13 and 15(d)

Retirement Plans

v2.4.1.9
Retirement Plans
12 Months Ended
Jan. 31, 2015
Pension and Other Postretirement Benefit Expense [Abstract]  
Retirement Plans
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 will be provided through defined contribution plans.
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 and beginning January 1, 2014, also 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.
At January 31, 2015 and February 1, 2014, the liability related to the qualified plan matching contribution, which is reflected in accounts payable and accrued liabilities on the Consolidated Balance Sheets, was $97 million and $25 million, respectively. Expense related to matching contributions for the qualified plan amounted to $89 million for 2014, $24 million for 2013 and $14 million for 2012.
At January 31, 2015, the liability under the non-qualified plan, which is reflected in other liabilities on the Consolidated Balance Sheets, was $4 million and the liability related to the non-qualified matching contribution, which is reflected in accounts payable and accrued liabilities on the Consolidated Balance Sheets, was $2 million. Expense related to matching contributions for the non-qualified plan amounted to $2 million for 2014. In connection with the non-qualified plan, the Company has mutual fund investments of $4 million, which are included in prepaid expenses and other current assets on the Consolidated Balance Sheets.
The Company has an additional deferred compensation plan wherein eligible executives elected to defer a portion of their compensation each year as either stock credits or cash credits. Effective January 1, 2014, no additional compensation will be deferred, with limited exceptions. The Company has transfered shares to a trust to cover the number estimated for distribution on account of stock credits currently outstanding. At January 31, 2015 and February 1, 2014, the liability under the plan, which is reflected in other liabilities on the Consolidated Balance Sheets, was $42 million and $44 million, respectively. Expense for 2014, 2013 and 2012 was immaterial.
Pension Plan
The following provides a reconciliation of benefit obligations, plan assets, and funded status of the Pension Plan as of January 31, 2015 and February 1, 2014:
 
 
2014
 
2013
 
(millions)
Change in projected benefit obligation
 
 
 
Projected benefit obligation, beginning of year
$
3,473

 
$
3,555

Service cost
6

 
112

Interest cost
151

 
143

Actuarial (gain) loss
563

 
(117
)
Benefits paid
(227
)
 
(220
)
Projected benefit obligation, end of year
3,966

 
3,473

Changes in plan assets
 
 
 
Fair value of plan assets, beginning of year
3,546

 
3,387

Actual return on plan assets
317

 
379

Company contributions

 

Benefits paid
(227
)
 
(220
)
Fair value of plan assets, end of year
3,636

 
3,546

Funded status at end of year
$
(330
)
 
$
73

Amounts recognized in the Consolidated Balance Sheets at
January 31, 2015 and February 1, 2014
 
 
 
Other assets
$

 
$
73

Other liabilities
(330
)
 

 
$
(330
)
 
$
73

Amounts recognized in accumulated other comprehensive loss at
January 31, 2015 and February 1, 2014
 
 
 
Net actuarial loss
$
1,397

 
$
931



The accumulated benefit obligation for the Pension Plan was $3,951 million as of January 31, 2015 and $3,453 million as of February 1, 2014.
Net pension costs and other amounts recognized in other comprehensive loss for the Pension Plan included the following actuarially determined components:
 
 
2014
 
2013
 
2012
 
(millions)
Net Periodic Pension Cost
 
 
 
 
 
Service cost
$
6

 
$
112

 
$
117

Interest cost
151

 
143

 
157

Expected return on assets
(246
)
 
(242
)
 
(253
)
Amortization of net actuarial loss
25

 
141

 
141

Amortization of prior service credit

 

 
(1
)
 
(64
)
 
154

 
161

Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Loss
 
 
 
 
 
Net actuarial (gain) loss
491

 
(254
)
 
(91
)
Amortization of net actuarial loss
(25
)
 
(141
)
 
(141
)
Amortization of prior service credit

 

 
1

 
466

 
(395
)
 
(231
)
Total recognized in net periodic pension cost and
other comprehensive loss
$
402

 
$
(241
)
 
$
(70
)

The estimated net actuarial loss for the Pension Plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2015 is $39 million.
The following weighted average assumptions were used to determine the projected benefit obligations for the Pension Plan at January 31, 2015 and February 1, 2014:
 
 
2014
 
2013
Discount rate
3.55
%
 
4.50
%
Rate of compensation increases
4.10
%
 
4.10
%


The following weighted average assumptions were used to determine the net periodic pension cost for the Pension Plan:
 
 
2014
 
2013
 
2012
Discount rate
4.50
%
 
4.15
%
 
4.65
%
Expected long-term return on plan assets
7.50
%
 
7.50
%
 
8.00
%
Rate of compensation increases
4.10
%
 
4.50
%
 
4.50
%


The Pension Plan’s assumptions are evaluated annually and updated as necessary.
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 February 2, 2013, the Company lowered the assumed annual long-term rate of return for the Pension Plan's assets from 8.00% to 7.50% based on then-expected future returns on the portfolio. As of January 31, 2015, the Company further lowered the assumed annual long-term rate of return for the Pension Plan's assets from 7.50% to 7.00% based on expected future returns on the portfolio of assets.
The Company develops its rate of compensation increase assumption based on recent experience and reflects an estimate of future compensation levels taking into account general increase levels, seniority, promotions and other factors. The salary increase assumption is used to project employees’ pay in future years and its impact on the projected benefit obligation for the Pension Plan.
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 50% equity securities, 40% debt securities, 5% real estate and 5% 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 31, 2015, excluding interest and dividend receivables and pending investment purchases and sales, by asset category are as follows:
 
 
Fair Value Measurements
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(millions)
Cash and cash equivalents
$
248

 
$

 
$
248

 
$

Equity securities:
 
 
 
 
 
 
 
U.S. 
821

 
344

 
477

 

International
659

 

 
659

 

Fixed income securities:
 
 
 
 
 
 
 
U. S. Treasury bonds
272

 

 
272

 

Other Government bonds
55

 

 
55

 

Agency backed bonds
28

 

 
28

 

Corporate bonds
434

 

 
434

 

Mortgage-backed securities and forwards
91

 

 
91

 

Asset-backed securities
19

 

 
19

 

Pooled funds
458

 

 
458

 

Other types of investments:
 
 
 
 
 
 
 
Real estate
244

 

 

 
244

Hedge funds
175

 

 

 
175

Private equity
181

 

 

 
181

Total
$
3,685

 
$
344

 
$
2,741

 
$
600

The fair values of the Pension Plan assets as of February 1, 2014, excluding interest and dividend receivables and pending investment purchases and sales, by asset category are as follows:
 
 
Fair Value Measurements
 
Total
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(millions)
Cash and cash equivalents
$
211

 
$

 
$
211

 
$

Equity securities:
 
 
 
 
 
 
 
U.S. 
834

 
354

 
480

 

International
748

 

 
748

 

Fixed income securities:
 
 
 
 
 
 
 
U. S. Treasury bonds
221

 

 
221

 

Other Government bonds
39

 

 
39

 

Agency backed bonds
22

 

 
22

 

Corporate bonds
388

 

 
388

 

Mortgage-backed securities and forwards
95

 

 
95

 

Asset-backed securities
20

 

 
20

 

Pooled funds
454

 

 
454

 

Other types of investments:
 
 
 
 
 
 
 
Real estate
214

 

 

 
214

Hedge funds
167

 

 

 
167

Private equity
167

 

 

 
167

Total
$
3,580

 
$
354

 
$
2,678

 
$
548


Corporate bonds consist primarily of investment grade bonds of U.S. issuers from diverse industries.
The fair value of the real estate, hedge funds and private equity investments represents the reported net asset value of shares or underlying assets of the investment. 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. The real estate investments are diversified across property types and geographical areas primarily in the United States of America. Private equity investments generally consist of limited partnerships in the United States of America, Europe and Asia. The hedge fund investments are through a fund of funds approach.
Due to the nature of the underlying assets of the real estate, hedge funds 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 of January 31, 2015 and February 1, 2014, certain of these investments are generally subject to lock-up periods, ranging from two to fourteen years, certain of these investments are subject to restrictions on redemption frequency, ranging from daily to twice per year, and certain of these investments are subject to advance notice requirements, ranging from sixty-day notification to ninety-day notification. As of January 31, 2015 and February 1, 2014, the Pension Plan had unfunded commitments related to certain of these investments totaling $115 million and $150 million, respectively.
The following table sets forth a summary of changes in fair value of the Pension Plan’s level 3 assets for 2014 and 2013:
 
 
2014
 
2013
 
(millions)
Balance, beginning of year
$
548

 
$
594

Actual gain on plan assets:
 
 
 
Relating to assets still held at the reporting date
18

 
1

Relating to assets sold during the period
22

 
48

Purchases
71

 
77

Sales
(59
)
 
(172
)
Balance, end of year
$
600

 
$
548



The Company does not anticipate making funding contributions to the Pension Plan in 2015.
The following benefit payments are estimated to be paid from the Pension Plan:
 
 
(millions)
Fiscal year
 
2015
$
301

2016
286

2017
280

2018
272

2019
270

2020-2024
1,236



Supplementary Retirement Plan
The following provides a reconciliation of benefit obligations, plan assets and funded status of the supplementary retirement plan as of January 31, 2015 and February 1, 2014:
 
 
2014
 
2013
 
(millions)
Change in projected benefit obligation
 
 
 
Projected benefit obligation, beginning of year
$
770

 
$
795

Service cost

 
6

Interest cost
33

 
32

Actuarial (gain) loss
170

 
(17
)
Plan amendment

 
8

Benefits paid
(53
)
 
(54
)
Projected benefit obligation, end of year
920

 
770

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

 

Company contributions
53

 
54

Benefits paid
(53
)
 
(54
)
Fair value of plan assets, end of year

 

Funded status at end of year
$
(920
)
 
$
(770
)
Amounts recognized in the Consolidated Balance Sheets at
January 31, 2015 and February 1, 2014
 
 
 
Accounts payable and accrued liabilities
$
(69
)
 
$
(59
)
Other liabilities
(851
)
 
(711
)
 
$
(920
)
 
$
(770
)
Amounts recognized in accumulated other comprehensive loss at
January 31, 2015 and February 1, 2014
 
 
 
Net actuarial loss
$
341

 
$
176

Prior service cost
8

 
8

 
$
349

 
$
184



The accumulated benefit obligation for the supplementary retirement plan was $920 million as of January 31, 2015 and $770 million as of February 1, 2014.
Net pension costs and other amounts recognized in other comprehensive loss for the supplementary retirement plan included the following actuarially determined components:
 
 
2014
 
2013
 
2012
 
(millions)
Net Periodic Pension Cost
 
 
 
 
 
Service cost
$

 
$
6

 
$
6

Interest cost
33

 
32

 
35

Amortization of net actuarial loss
5

 
19

 
17

Amortization of prior service credit

 

 
(1
)
 
38

 
57

 
57

Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Loss
 
 
 
 
 
Net actuarial (gain) loss
170

 
(17
)
 
34

Prior service cost

 
8

 

Amortization of net actuarial loss
(5
)
 
(19
)
 
(17
)
Amortization of prior service credit

 

 
1

 
165

 
(28
)
 
18

Total recognized in net periodic pension cost and
other comprehensive loss
$
203

 
$
29

 
$
75


The estimated net actuarial loss for the supplementary retirement plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2015 is $10 million.
The following weighted average assumption was used to determine the projected benefit obligations for the supplementary retirement plan at January 31, 2015 and February 1, 2014:
 
 
2014
 
2013
Discount rate
3.55
%
 
4.50
%


The following weighted average assumptions were used to determine net pension costs for the supplementary retirement plan:
 
 
2014
 
2013
 
2012
Discount rate
4.50
%
 
4.15
%
 
4.65
%
Rate of compensation increases
N/A

 
4.90
%
 
4.90
%

The supplementary retirement plan’s assumptions are evaluated annually and updated as necessary.
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 Company developed its rate of compensation increase assumption based on recent experience and reflected an estimate of future compensation levels taking into account general increase levels, seniority, promotions and other factors. The salary increase assumption was used to project employees’ pay in future years and its impact on the projected benefit obligation for the supplementary retirement plan.
The following benefit payments are estimated to be funded by the Company and paid from the supplementary retirement plan:
 
 
(millions)
Fiscal year
 
2015
$
69

2016
68

2017
70

2018
64

2019
68

2020-2024
267