|
27. Pension and Postretirement Health Care Plans
We have qualified defined benefit pension plans covering team members who meet age and service requirements, including in certain circumstances, date of hire. We also have unfunded nonqualified pension plans for team members with qualified plan compensation restrictions. Eligibility for, and the level of, these benefits varies depending on team members' date of hire, length of service and/or team member compensation. Upon early retirement and prior to Medicare eligibility, team members also become eligible for certain health care benefits if they meet minimum age and service requirements and agree to contribute a portion of the cost. Effective January 1, 2009, our qualified defined benefit pension plan was closed to new participants, with limited exceptions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Pension Benefits |
|
|
|
|
|
Change in Projected Benefit Obligation
|
|
Postretirement
Health Care Benefits |
|
|
|
Qualified Plans |
|
Nonqualified Plans |
|
(millions)
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
| |
|
|
Benefit obligation at beginning of period |
|
$ |
2,525 |
|
$ |
2,227 |
|
$ |
31 |
|
$ |
33 |
|
$ |
94 |
|
$ |
87 |
|
|
Service cost |
|
|
116 |
|
|
114 |
|
|
1 |
|
|
1 |
|
|
10 |
|
|
9 |
|
|
Interest cost |
|
|
135 |
|
|
127 |
|
|
2 |
|
|
2 |
|
|
4 |
|
|
4 |
|
|
Actuarial (gain)/loss |
|
|
349 |
|
|
160 |
|
|
7 |
|
|
(2 |
) |
|
— |
|
|
3 |
|
|
Participant contributions |
|
|
1 |
|
|
2 |
|
|
— |
|
|
— |
|
|
6 |
|
|
6 |
|
|
Benefits paid |
|
|
(111 |
) |
|
(105 |
) |
|
(3 |
) |
|
(3 |
) |
|
(14 |
) |
|
(15 |
) |
| |
|
|
Benefit obligation at end of period |
|
$ |
3,015 |
|
$ |
2,525 |
|
$ |
38 |
|
$ |
31 |
|
$ |
100 |
|
$ |
94 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Pension Benefits |
|
|
|
|
|
Change in Plan Assets
|
|
Postretirement
Health Care Benefits |
|
|
|
Qualified Plans |
|
Nonqualified Plans |
|
(millions)
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
| |
|
|
Fair value of plan assets at beginning of period |
|
$ |
2,515 |
|
$ |
2,157 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Actual return on plan assets |
|
|
364 |
|
|
308 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Employer contributions |
|
|
152 |
|
|
153 |
|
|
3 |
|
|
3 |
|
|
8 |
|
|
9 |
|
|
Participant contributions |
|
|
1 |
|
|
2 |
|
|
— |
|
|
— |
|
|
6 |
|
|
6 |
|
|
Benefits paid |
|
|
(111 |
) |
|
(105 |
) |
|
(3 |
) |
|
(3 |
) |
|
(14 |
) |
|
(15 |
) |
| |
|
|
Fair value of plan assets at end of period |
|
|
2,921 |
|
|
2,515 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Benefit obligation at end of period |
|
|
3,015 |
|
|
2,525 |
|
|
38 |
|
|
31 |
|
|
100 |
|
|
94 |
|
| |
|
|
Funded/(underfunded) status |
|
$ |
(94 |
) |
$ |
(10 |
) |
$ |
(38 |
) |
$ |
(31 |
) |
$ |
(100 |
) |
$ |
(94 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Recognition of Funded/(Underfunded) Status
|
|
Qualified Plans |
|
Nonqualified Plans (a) |
|
(millions)
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
| |
|
|
Other noncurrent assets |
|
$ |
3 |
|
$ |
5 |
|
$ |
— |
|
$ |
— |
|
|
Accrued and other current liabilities |
|
|
(1 |
) |
|
(1 |
) |
|
(9 |
) |
|
(11 |
) |
|
Other noncurrent liabilities |
|
|
(96 |
) |
|
(14 |
) |
|
(129 |
) |
|
(114 |
) |
| |
|
|
Net amounts recognized |
|
$ |
(94 |
) |
$ |
(10 |
) |
$ |
(138 |
) |
$ |
(125 |
) |
| |
|
- (a)
- Includes postretirement health care benefits.
The following table summarizes the amounts recorded in accumulated other comprehensive income, which have not yet been recognized as a component of net periodic benefit expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amounts in Accumulated Other Comprehensive Income
|
|
|
|
|
|
Postretirement
Health Care Plans |
|
|
|
Pension Plans |
|
(millions)
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
| |
|
|
Net actuarial loss |
|
$ |
1,027 |
|
$ |
895 |
|
$ |
44 |
|
$ |
48 |
|
|
Prior service credits |
|
|
— |
|
|
(1 |
) |
|
(41 |
) |
|
(51 |
) |
| |
|
|
Amounts in accumulated other comprehensive income |
|
$ |
1,027 |
|
$ |
894 |
|
$ |
3 |
|
$ |
(3 |
) |
| |
|
The following table summarizes the changes in accumulated other comprehensive income for the years ended January 28, 2012 and January 29, 2011, related to our pension and postretirement health care plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Change in Accumulated Other Comprehensive Income
|
|
|
|
|
|
Postretirement
Health Care Benefits |
|
|
|
Pension Benefits |
|
(millions)
|
|
Pretax
|
|
Net of tax
|
|
Pretax
|
|
Net of tax
|
|
| |
|
|
January 30, 2010 |
|
$ |
895 |
|
$ |
544 |
|
$ |
(12 |
) |
$ |
(7 |
) |
|
Net actuarial loss |
|
|
40 |
|
|
25 |
|
|
3 |
|
|
2 |
|
|
Amortization of net actuarial losses |
|
|
(44 |
) |
|
(27 |
) |
|
(4 |
) |
|
(3 |
) |
|
Amortization of prior service costs and transition |
|
|
3 |
|
|
1 |
|
|
10 |
|
|
6 |
|
| |
|
|
January 29, 2011 |
|
$ |
894 |
|
$ |
543 |
|
$ |
(3 |
) |
$ |
(2 |
) |
|
Net actuarial loss |
|
|
198 |
|
|
120 |
|
|
— |
|
|
— |
|
|
Amortization of net actuarial losses |
|
|
(67 |
) |
|
(41 |
) |
|
(4 |
) |
|
(2 |
) |
|
Amortization of prior service costs and transition |
|
|
2 |
|
|
1 |
|
|
10 |
|
|
6 |
|
| |
|
|
January 28, 2012 |
|
$ |
1,027 |
|
$ |
623 |
|
$ |
3 |
|
$ |
2 |
|
| |
|
The following table summarizes the amounts in accumulated other comprehensive income expected to be amortized and recognized as a component of net periodic benefit expense in 2012:
|
|
|
|
|
|
|
|
| |
|
Expected Amortization of Amounts in Accumulated Other Comprehensive Income
(millions)
|
|
Pretax
|
|
Net of tax
|
|
| |
|
|
Net actuarial loss |
|
$ |
106 |
|
$ |
64 |
|
|
Prior service credits |
|
|
(10 |
) |
|
(6 |
) |
| |
|
|
Total amortization expense |
|
$ |
96 |
|
$ |
58 |
|
| |
|
The following table summarizes our net pension and postretirement health care benefits expense for the years 2011, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Net Pension and Postretirement Health Care Benefits Expense
|
|
|
|
|
|
|
|
Postretirement
Health Care Benefits |
|
|
|
Pension Benefits |
|
(millions)
|
|
2011
|
|
2010
|
|
2009
|
|
2011
|
|
2010
|
|
2009
|
|
| |
|
|
Service cost of benefits earned during the period |
|
$ |
117 |
|
$ |
115 |
|
$ |
100 |
|
$ |
10 |
|
$ |
9 |
|
$ |
7 |
|
|
Interest cost on projected benefit obligation |
|
|
137 |
|
|
129 |
|
|
125 |
|
|
4 |
|
|
4 |
|
|
6 |
|
|
Expected return on assets |
|
|
(206 |
) |
|
(191 |
) |
|
(177 |
) |
|
— |
|
|
— |
|
|
— |
|
|
Amortization of losses |
|
|
67 |
|
|
44 |
|
|
24 |
|
|
4 |
|
|
4 |
|
|
2 |
|
|
Amortization of prior service cost |
|
|
(2 |
) |
|
(3 |
) |
|
(2 |
) |
|
(10 |
) |
|
(10 |
) |
|
(2 |
) |
| |
|
|
Total |
|
$ |
113 |
|
$ |
94 |
|
$ |
70 |
|
$ |
8 |
|
$ |
7 |
|
$ |
13 |
|
| |
|
Prior service cost amortization is determined using the straight-line method over the average remaining service period of team members expected to receive benefits under the plan.
|
|
|
|
|
|
|
|
| |
|
Defined Benefit Pension Plan Information
(millions)
|
|
2011
|
|
2010
|
|
| |
|
|
Accumulated benefit obligation (ABO) for all plans (a) |
|
$ |
2,872 |
|
$ |
2,395 |
|
|
Projected benefit obligation for pension plans with an ABO in excess of plan assets (b) |
|
|
55 |
|
|
47 |
|
|
Total ABO for pension plans with an ABO in excess of plan assets |
|
|
48 |
|
|
42 |
|
| |
|
- (a)
- The present value of benefits earned to date assuming no future salary growth.
- (b)
- The present value of benefits earned to date by plan participants, including the effect of assumed future salary increases.
Assumptions
Weighted average assumptions used to determine benefit obligations as of the measurement date were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Weighted Average Assumptions
|
|
|
|
|
|
Postretirement
Health Care Benefits |
|
|
|
Pension Benefits |
|
|
|
2011
|
|
2010
|
|
2011
|
|
2010
|
|
| |
|
|
Discount rate |
|
|
4.65 |
% |
|
5.50 |
% |
|
3.60 |
% |
|
4.35 |
% |
|
Average assumed rate of compensation increase |
|
|
3.50 |
% |
|
4.00 |
% |
|
n/a |
|
|
n/a |
|
| |
|
Weighted average assumptions used to determine net periodic benefit expense for each fiscal year were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Weighted Average Assumptions
|
|
|
|
|
|
|
|
Postretirement
Health Care Benefits |
|
|
|
Pension Benefits |
|
|
|
2011
|
|
2010
|
|
2009
|
|
2011
|
|
2010 (a)
|
|
2009 (a)
|
|
| |
|
|
Discount rate |
|
|
5.50 |
% |
|
5.85 |
% |
|
6.50 |
% |
|
4.35 |
% |
|
4.85 |
% |
|
6.50 |
% |
|
Expected long-term rate of return on plan assets |
|
|
8.00 |
% |
|
8.00 |
% |
|
8.00 |
% |
|
n/a |
|
|
n/a |
|
|
n/a |
|
|
Average assumed rate of compensation increase |
|
|
4.00 |
% |
|
4.00 |
% |
|
4.25 |
% |
|
n/a |
|
|
n/a |
|
|
n/a |
|
| |
|
- (a)
- Due to the remeasurement from the plan amendment in the third quarter of 2009, the discount rate was decreased from 6.50 percent to 4.85 percent.
The discount rate used to measure net periodic benefit expense each year is the rate as of the beginning of the year (e.g., the prior measurement date). With an essentially stable asset allocation over the following time periods, our most recent compound annual rate of return on qualified plans' assets was 5.1 percent, 7.8 percent and 8.3 percent for the 5-year, 10-year and 15-year periods, respectively.
The market-related value of plan assets, which is used in calculating expected return on assets in net periodic benefit cost, is determined each year by adjusting the previous year's value by expected return, benefit payments and cash contributions. The market-related value is adjusted for asset gains and losses in equal 20 percent adjustments over a five- year period.
Our expected annualized long-term rate of return assumptions as of January 28, 2012 were 8.5 percent for domestic and international equity securities, 5.5 percent for long-duration debt securities, 8.5 percent for balanced funds and 10.0 percent for other investments. These estimates are a judgmental matter in which we consider the composition of our asset portfolio, our historical long-term investment performance and current market conditions. We review the expected long-term rate of return on an annual basis, and revise it as appropriate. Additionally, we monitor the mix of investments in our portfolio to ensure alignment with our long-term strategy to manage pension cost and reduce volatility in our assets.
An increase in the cost of covered health care benefits of 7.5 percent was assumed for 2011 and is assumed for 2012. The rate will be reduced to 5.0 percent in 2019 and thereafter.
|
|
|
|
|
|
|
|
| |
|
Health Care Cost Trend Rates – 1% Change
(millions)
|
|
1% Increase
|
|
1% Decrease
|
|
| |
|
|
Effect on total of service and interest cost components of net periodic postretirement health care benefit expense |
|
$ |
1 |
|
$ |
(1 |
) |
|
Effect on the health care component of the accumulated postretirement benefit obligation |
|
|
7 |
|
|
(7 |
) |
| |
|
Plan Assets
Our asset allocation policy is designed to reduce the long-term cost of funding our pension obligations. The plan invests with both passive and active investment managers depending on the investment's asset class. The plan also seeks to reduce the risk associated with adverse movements in interest rates by employing an interest rate hedging program, which may include the use of interest rate swaps, total return swaps and other instruments.
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Actual Allocation |
|
Asset Category
|
|
Current targeted
allocation
|
|
|
|
2011
|
|
2010
|
|
| |
|
|
Domestic equity securities (a) |
|
|
19 |
% |
|
19 |
% |
|
18 |
% |
|
International equity securities |
|
|
12 |
|
|
11 |
|
|
10 |
|
|
Debt securities |
|
|
25 |
|
|
29 |
|
|
25 |
|
|
Balanced funds |
|
|
30 |
|
|
25 |
|
|
26 |
|
|
Other (b) |
|
|
14 |
|
|
16 |
|
|
21 |
|
| |
|
|
Total |
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
| |
|
- (a)
- Equity securities include our common stock in amounts substantially less than 1 percent of total plan assets as of January 28, 2012 and January 29, 2011.
- (b)
- Other assets include private equity, mezzanine and high-yield debt, natural resources and timberland funds, multi-strategy hedge funds, derivative instruments and a 4 percent allocation to real estate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Measurements
|
|
|
|
Fair Value at January 28, 2012 |
|
|
|
Fair Value at January 29, 2011 |
|
(millions)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
| |
|
|
Cash and cash equivalents |
|
$ |
263 |
|
$ |
11 |
|
$ |
252 |
|
$ |
— |
|
$ |
195 |
|
$ |
— |
|
$ |
195 |
|
$ |
— |
|
|
Common collective trusts (a) |
|
|
653 |
|
|
— |
|
|
653 |
|
|
— |
|
|
490 |
|
|
— |
|
|
490 |
|
|
— |
|
|
Equity securities (b) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
36 |
|
|
36 |
|
|
— |
|
|
— |
|
|
Government securities (c) |
|
|
356 |
|
|
— |
|
|
356 |
|
|
— |
|
|
259 |
|
|
— |
|
|
259 |
|
|
— |
|
|
Fixed income (d) |
|
|
466 |
|
|
— |
|
|
466 |
|
|
— |
|
|
397 |
|
|
— |
|
|
397 |
|
|
— |
|
|
Balanced funds (e) |
|
|
744 |
|
|
— |
|
|
744 |
|
|
— |
|
|
596 |
|
|
— |
|
|
596 |
|
|
— |
|
|
Private equity funds (f) |
|
|
283 |
|
|
— |
|
|
— |
|
|
283 |
|
|
327 |
|
|
— |
|
|
— |
|
|
327 |
|
|
Other (g) |
|
|
156 |
|
|
— |
|
|
41 |
|
|
115 |
|
|
130 |
|
|
— |
|
|
3 |
|
|
127 |
|
| |
|
|
Total |
|
$ |
2,921 |
|
$ |
11 |
|
$ |
2,512 |
|
$ |
398 |
|
$ |
2,430 |
|
$ |
36 |
|
$ |
1,940 |
|
$ |
454 |
|
| |
|
|
Contributions in transit (h) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total plan assets |
|
$ |
2,921 |
|
|
|
|
|
|
|
|
|
|
$ |
2,515 |
|
|
|
|
|
|
|
|
|
|
| |
|
- (a)
- Passively managed index funds with holdings in domestic and international equities.
- (b)
- Investments in U.S. small-, mid- and large-cap companies.
- (c)
- Investments in government securities and passively managed index funds with holdings in long-term government bonds.
- (d)
- Investments in corporate bonds, mortgage-backed securities and passively managed index funds with holdings in long-term corporate bonds.
- (e)
- Investments in equities, nominal and inflation-linked fixed income securities, commodities and public real estate.
- (f)
- Includes investments in venture capital, mezzanine and high-yield debt, natural resources and timberland funds.
- (g)
- Investments in multi-strategy hedge funds (including domestic and international equity securities, convertible bonds and other alternative investments), real estate and derivative investments.
- (h)
- Represents $20 million in contributions to equity securities and $65 million in contributions to balanced funds held by investment managers, but not yet invested in the respective funds as of January 29, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Level 3 Reconciliation
|
|
Actual return on plan assets (a) |
|
|
|
|
|
|
|
(millions)
|
|
Balance at
beginning of
period
|
|
Relating to
assets still held
at the reporting
date
|
|
Relating to
assets sold
during the
period
|
|
Purchases,
sales and
settlements
|
|
Transfer in
and/or out of
Level 3
|
|
Balance at
end of period
|
|
| |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity funds |
|
$ |
336 |
|
$ |
28 |
|
$ |
12 |
|
$ |
(49 |
) |
$ |
— |
|
$ |
327 |
|
|
Other |
|
|
119 |
|
|
7 |
|
|
2 |
|
|
(1 |
) |
|
— |
|
|
127 |
|
| |
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity funds |
|
$ |
327 |
|
$ |
(6 |
) |
$ |
26 |
|
$ |
(64 |
) |
$ |
— |
|
$ |
283 |
|
|
Other |
|
|
127 |
|
|
9 |
|
|
— |
|
|
(21 |
) |
|
— |
|
|
115 |
|
| |
|
- (a)
- Represents realized and unrealized gains (losses) from changes in values of those financial instruments only for the period in which the instruments were classified as Level 3.
|
|
|
| |
Position
|
|
Valuation Technique
|
| |
| Cash and cash equivalents |
|
These investments are cash holdings and investment vehicles valued using the Net Asset Value (NAV) provided by the administrator of the fund. The NAV for the investment vehicles is based on the value of the underlying assets owned by the fund minus applicable costs and liabilities, and then divided by the number of shares outstanding. |
| Equity securities |
|
Valued at the closing price reported on the major market on which the individual securities are traded. |
| Common collective trusts/balanced funds/certain multi-strategy hedge funds |
|
Valued using the NAV provided by the administrator of the fund. The NAV is a quoted transactional price for participants in the fund, which do not represent an active market. |
| Fixed income and government securities |
|
Valued using matrix pricing models and quoted prices of securities with similar characteristics. |
| Private equity/real estate/certain multi-strategy hedge funds/other |
|
Valued by deriving Target's proportionate share of equity investment from audited financial statements. Private equity and real estate investments require significant judgment on the part of the fund manager due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such investments. Certain multi-strategy hedge funds represent funds of funds that include liquidity restrictions and for which timely valuation information is not available. |
| |
Contributions
Our obligations to plan participants can be met over time through a combination of company contributions to these plans and earnings on plan assets. In 2011 and 2010, we made discretionary contributions of $152 million and $153 million, respectively, to our qualified defined benefit pension plans. We are not required to make any contributions in 2012. However, depending on investment performance and plan funded status, we may elect to make a contribution. We expect to make contributions in the range of $5 million to $10 million to our postretirement health care benefit plan in 2012.
Estimated Future Benefit Payments
Benefit payments by the plans, which reflect expected future service as appropriate, are expected to be paid as follows:
|
|
|
|
|
|
|
|
| |
|
Estimated Future Benefit Payments
(millions)
|
|
Pension
Benefits
|
|
Postretirement
Health Care Benefits
|
|
| |
|
|
2012 |
|
$ |
131 |
|
$ |
6 |
|
|
2013 |
|
|
140 |
|
|
7 |
|
|
2014 |
|
|
149 |
|
|
7 |
|
|
2015 |
|
|
157 |
|
|
8 |
|
|
2016 |
|
|
165 |
|
|
9 |
|
|
2017-2021 |
|
|
958 |
|
|
63 |
|
| |
|
|