12.

Retirement and Benefit Plans

Pension and Other Postretirement Benefit Plans

The Company sponsors noncontributory defined benefit pension plans covering certain terminated employees, vested employees, retirees and some active employees, primarily in Contract. In 2004 or earlier, the Company’s qualified pension plans were closed to new entrants and the benefits of eligible participants were frozen.

Under the terms of the Company’s qualified plans, the pension benefit for employees was based primarily on the employees’ years of service and benefit plan formulas that varied by plan. The Company’s general funding policy is to make contributions to the plans in amounts that are within the limits of deductibility under current tax regulations, and not less than the minimum contribution required by law.

The Company also sponsors various retiree medical benefit and life insurance plans. The type of retiree benefits and the extent of coverage vary based on employee classification, date of retirement, location, and other factors. All of the Company’s postretirement medical plans are unfunded. The Company explicitly reserves the right to amend or terminate its retiree medical and life insurance plans at any time, subject only to constraints, if any, imposed by the terms of collective bargaining agreements. Amendment or termination may significantly affect the amount of expense incurred.

Obligations and Funded Status

The changes in pension and other postretirement benefit obligations and plan assets during 2012 and 2011, as well as the funded status of the Company’s plans at December 29, 2012 and December 31, 2011, were as follows:


	Pension Benefits						Other Benefits
	2012			2011			2012			2011
	(thousands)
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,365,281		$	1,297,655		$	22,252		$	24,021
Service cost		3,740			2,546			292			227
Interest cost		64,688			70,176			936			1,006
Actuarial loss		100,004			94,656			1,819			(1,334	)
Changes due to exchange rates		—			—			469			(346	)
Benefits paid		(253,165	)		(99,752	)		(1,734	)		(1,322	)

Benefit obligation at end of year	$	1,280,548		$	1,365,281		$	24,034		$	22,252

Change in plan assets:
Fair value of plan assets at beginning of year	$	1,035,731		$	1,117,413		$	—		$	—
Actual return on plan assets		175,489			14,746			—			—
Employer contributions		21,078			3,324			1,734			1,322
Benefits paid		(253,165	)		(99,752	)		(1,734	)		(1,322	)

Fair value of plan assets at end of year	$	979,133		$	1,035,731		$	—		$	—

Funded status	$	(301,415	)	$	(329,550	)	$	(24,034	)	$	(22,252	)

The following table shows the amounts recognized in the Consolidated Balance Sheets related to the Company’s defined benefit pension and other postretirement benefit plans at year-end:


	Pension Benefits						Other Benefits
	2012			2011			2012			2011
	(thousands)
Current liabilities	$	(3,293	)	$	(6,530	)	$	(1,195	)	$	(1,243	)
Noncurrent liabilities		(298,122	)		(323,020	)		(22,839	)		(21,009	)

Net amount recognized	$	(301,415	)	$	(329,550	)	$	(24,034	)	$	(22,252	)

Amounts recognized in accumulated other comprehensive loss consist of:


Net loss	$	481,501	$	548,212	$	6,157		$	4,486
Prior service cost (credit)		—		—		(18,131	)		(22,138	)

Total	$	481,501	$	548,212	$	(11,974	)	$	(17,652	)

The accumulated benefit obligation for all defined benefit pension plans was $1,280.5 million and $1,365.3 million for December 29, 2012 and December 31, 2011, respectively.

Information for pension plans with an accumulated benefit obligation in excess of plan assets is as follows:


	Pension Benefits
	2012		2011
	(thousands)
Projected benefit obligation	$	1,280,548	$	1,365,281
Accumulated benefit obligation		1,280,548		1,365,281
Fair value of plan assets		979,133		1,035,731

Components of Net Periodic Benefit Cost (Income)

The components of net periodic benefit cost (income) are as follows:


	Pension Benefits									Other Benefits
	2012			2011			2010			2012			2011			2010
	(thousands)
Service cost	$	3,740		$	2,546		$	3,164		$	292		$	227		$	263
Interest cost		64,688			70,176			74,213			936			1,006			1,213
Expected return on plan assets		(83,094	)		(79,289	)		(83,494	)		—			—			—
Recognized actuarial loss		17,954			17,371			13,239			201			220			224
Amortization of prior service credits		—			—			—			(4,008	)		(4,009	)		(4,006	)
Other		—			80			149			—			—			—

Net periodic benefit cost (income)	$	3,288		$	10,884		$	7,271		$	(2,579	)	$	(2,556	)	$	(2,306	)

Other changes in plan assets and benefit obligations recognized in other comprehensive income are as follows:


	Pension Benefits						Other Benefits
	2012			2011			2012			2011
	(thousands)
Accumulated other comprehensive (income) loss at beginning of year	$	548,212		$	406,465		$	(17,652	)	$	(20,093	)
Net loss (gain)		7,610			159,118			1,819			(1,334	)
Reduction due to settlement		(56,367	)		—			—			—
Amortization of net loss		(17,954	)		(17,371	)		(201	)		(220	)
Amortization of prior service credits		—			—			4,008			4,009
Canadian rate adjustment		—			—			52			(14	)

Accumulated other comprehensive (income) loss at end of year	$	481,501		$	548,212		$	(11,974	)	$	(17,652	)

For the defined benefit pension plans, the estimated net loss that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year is $21.3 million. For the other postretirement benefit plans, the estimated net loss and prior service credit that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost over the next fiscal year is $0.4 million and $4.0 million, respectively.

During 2012, our pension plans were amended to provide a one-time special election period during which certain former employees, alternate payees, and beneficiaries could elect to have their pension benefits under the Plan paid as an immediate lump sum payment or an immediately commencing annuity. Approximately 9,800 participants were eligible to elect an immediate lump sum payment or annuity. Of those participants eligible, approximately 300 elected an annuity while approximately 5,600 elected an immediate lump sum payment. The associated distributions by the pension plans from plan funds were approximately $150 million, and resulted in a non-cash pre-tax charge by the Company of $56 million to expense the accumulated loss relating to these participants that otherwise would have been amortized over their life expectancies. This action reduced the pension benefit obligation liability by approximately $190 million.

Assumptions

The assumptions used in accounting for the Company’s plans are estimates of factors including, among other things, the amount and timing of future benefit payments. The following table presents the key weighted average assumptions used in the measurement of the Company’s benefit obligations as of year-end:


							Other Benefits
	Pension Benefits						United States						Canada
	2012			2011			2012			2011			2012			2011
Discount rate		3.88	%		4.93	%		3.10	%		3.70	%		4.00	%		4.50	%

The following table presents the weighted average assumptions used in the measurement of net periodic benefit cost as of year-end:


										Other Benefits
	Pension Benefits									United States									Canada
	2012			2011			2010			2012			2011			2010			2012			2011			2010
Discount rate		4.93	%		5.64	%		6.15	%		3.70	%		4.50	%		5.10	%		4.50	%		5.30	%		6.40	%
Expected long-term return on plan assets		8.20	%		8.20	%		8.20	%		—			—			—			—			—			—

The assumed discount rate (which is required to be the rate at which the projected benefit obligation could be effectively settled as of the measurement date) is based on the rates of return for a theoretical portfolio of high-grade corporate bonds (rated AA- or better) with cash flows that generally match our expected benefit payments in future years. In selecting bonds for this theoretical portfolio, we focus on bonds that match cash flows to benefit payments and limit our concentration of bonds by issuer. To the extent scheduled bond proceeds exceed the estimated benefit payments in a given period, the yield calculation assumes those excess proceeds are reinvested at an assumed forward rate. The implied forward rate used in the bond model is based on the Citigroup Pension Discount Curve as of the last day of the year.

The expected long-term rate of return on plan assets assumption is based on the weighted average of expected returns for the major asset classes in which the plans’ assets are held. Asset-class expected returns are based on long-term historical returns, inflation expectations, forecasted gross domestic product and earnings growth, as well as other economic factors. The weights assigned to each asset class are based on the Company’s investment strategy. The weighted average expected return on plan assets used in the calculation of net periodic pension benefit cost for 2013 is 7.8%.

Obligation and costs related to the Canadian retiree health plan are impacted by changes in trend rates.

The following table presents the assumed healthcare cost trend rates used in measuring the Company’s postretirement benefit obligations at December 29, 2012 and December 31, 2011:


	2012			2011
Weighted average assumptions as of year-end:
Healthcare cost trend rate assumed for next year		6.0	%		6.5	%
Rate 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		2015			2015

A one-percentage-point change in the assumed healthcare cost trend rates would impact operating income by approximately $1.5 million.

Plan Assets

The allocation of pension plan assets by category at December 29, 2012 and December 31, 2011 is as follows:


	2012			2011
OfficeMax common stock		1.7	%		1.2	%
U.S. equity securities		31.0	%		27.0	%
International equity securities		15.3	%		10.3	%
Global equity securities		11.3	%		15.8	%
Fixed-income securities		40.7	%		45.7	%

		100	%		100	%

The Company’s Retirement Funds Investment Committee is responsible for establishing and overseeing the implementation of the investment policy for the Company’s pension plans. The investment policy is structured to optimize growth of the pension plan trust assets, while minimizing the risk of significant losses, in order to enable the plans to satisfy their benefit payment obligations over time. Plan assets are invested primarily in OfficeMax common stock, U.S. equities, global equities, international equities and fixed-income securities. The Company uses benefit payments and Company contributions as its primary rebalancing mechanisms to maintain the asset class exposures within the guideline ranges established under the investment policy.

The current asset allocation guidelines set forth an OfficeMax common stock range of 0% to 15%, a U.S. equity range of 25% to 35%, an international equity range of 9% to 19%, a global equity range of 6% to 16% and a fixed-income range of 38% to 48%. Asset-class positions within the ranges are continually evaluated and adjusted based on expectations for future returns, the funded position of the plans and market risks. Occasionally, the Company may utilize futures or other financial instruments to alter the pension trust’s exposure to various asset classes in a lower-cost manner than trading securities in the underlying portfolios.

In 2009, we contributed 8.3 million shares of OfficeMax common stock to our qualified pension plans, which are managed by an independent fiduciary. At the end of 2012, the plan held 1.7 million shares with a value of $16.2 million.

Generally, quoted market prices are used to value pension plan assets. Equities, some fixed-income securities, publicly traded investment funds, and U.S. government obligations are valued by reference to published market prices. Investments in certain restricted stocks are valued at the quoted market price of the issuer’s unrestricted common stock less an appropriate discount. If a quoted market price for unrestricted common stock of the issuer is not available, restricted common stocks are valued at a multiple of current earnings less an appropriate discount. The multiple chosen is consistent with multiples of similar companies based on current market prices.

The following table presents the pension plan assets by level within the fair value hierarchy as of December 29, 2012.


	Level 1		Level 2		Level 3
	(thousands)
Money market funds	$	—	$	26,244	$	—
Equity securities:
OfficeMax common stock		16,232		—		—
U.S. large-cap		19,184		—		—
U.S. small and mid-cap		7,855		—		—
International		78,446		—		—
Fixed-Income:
Corporate bonds		—		326,344		—
Government securities		—		13,378		—
Other fixed-income		—		29,286		—
Other:
Equity mutual funds		—		453,458		—
Group annuity contracts		—		—		6,187
Other, including plan receivables and payables		2,519		—		—

	$	124,236	$	848,710	$	6,187

The following table presents the pension plan assets by level within the fair value hierarchy as of December 31, 2011.


	Level 1		Level 2		Level 3
	(thousands)
Money market funds	$	—	$	19,280	$	—
Equity securities:
OfficeMax common stock		12,585		—		—
U.S. large-cap		53,629		—		—
U.S. small and mid-cap		13,529		—		—
International		84,647		—		—
Fixed-Income:
Corporate bonds		—		421,027		—
Government securities		—		7,785		—
Other fixed-income		—		24,907		—
Other:
Equity mutual funds		—		385,862		—
Group annuity contracts		—		—		5,662
Other, including plan receivables and payables		5,665		1,153		—

	$	170,055	$	860,014	$	5,662

The following is a reconciliation of the change in fair value of the pension plan assets calculated based on Level 3 inputs:


	Total
	(thousands)
Balance at December 31, 2011	$	5,662
Benefit payments and administrative expenses		(9	)
Invesment income and net appreciation in investments		534

Balance at December 31, 2012	$	6,187

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

Cash Flows

Pension plan contributions include required statutory minimum amounts and, in some years, additional discretionary amounts. During 2012, 2011 and 2010, the Company made cash contributions to its pension plans totaling $21.1 million, $3.3 million and $3.4 million, respectively. Pension contributions for 2013 are estimated to be $3.3 million. The Company may elect at any time to make additional voluntary contributions.

Qualified pension benefit payments are paid from the assets held in the plan trust, while nonqualified pension and other benefit payments are paid by the Company. Future benefit payments by year are estimated to be as follows:


	Pension Benefits		Other Benefits
	(thousands)
2013	$	95,892	$	1,195
2014		94,316		1,166
2015		92,106		1,140
2016		90,218		1,126
2017		88,242		1,126
2018-2022		410,655		5,577

Defined Contribution Plans

The Company also sponsors defined contribution plans for most of its employees. Through 2004, the Company sponsored four contributory defined contribution savings plans for most of its salaried and hourly employees: a plan for Retail employees, a plan for non-Retail salaried employees, a plan for union hourly employees, and a plan for non-Retail, nonunion hourly employees. The plan for non-Retail salaried employees included an employee stock ownership plan (“ESOP”) component and the Company’s Series D ESOP convertible preferred stock were fully allocated to eligible participants in prior years. Total Company contributions to the defined contribution savings plans were $6.1 million in 2012, $7.0 million in 2011 and $3.2 million in 2010.