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10. Pension, Postretirement Health Care and Other Benefits
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.
|
Net Pension and Postretirement |
|
Pension Benefits |
|
Postretirement Health Care Benefits |
|
|
Health Care Benefits Expense |
|
Three Months |
|
Six Months |
|
Three Months |
|
Six Months |
|
|
|
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
|
|
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
|
July 28, |
|
July 30, |
|
|
(millions) |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
|
Service cost benefits earned during the period |
|
$ |
30 |
|
$ |
29 |
|
$ |
60 |
|
$ |
58 |
|
$ |
2 |
|
$ |
2 |
|
$ |
4 |
|
$ |
4 |
|
|
Interest cost on projected benefit obligation |
|
35 |
|
35 |
|
70 |
|
69 |
|
— |
|
1 |
|
1 |
|
2 |
|
|
Expected return on assets |
|
(55 |
) |
(51 |
) |
(110 |
) |
(102 |
) |
— |
|
— |
|
— |
|
— |
|
|
Amortization of losses |
|
26 |
|
18 |
|
52 |
|
34 |
|
1 |
|
1 |
|
2 |
|
2 |
|
|
Amortization of prior service cost |
|
— |
|
(1 |
) |
— |
|
(2 |
) |
(2 |
) |
(2 |
) |
(4 |
) |
(4 |
) |
|
Total |
|
$ |
36 |
|
$ |
30 |
|
$ |
72 |
|
$ |
57 |
|
$ |
1 |
|
$ |
2 |
|
$ |
3 |
|
$ |
4 |
|
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.
Our unfunded, nonqualified deferred compensation plan is offered to approximately 3,000 current and retired team members whose participation in our 401(k) plan is limited by statute or regulation. These team members choose from a menu of crediting rate alternatives that are the same as the investment choices in our 401(k) plan, including Target common stock. We credit an additional 2 percent per year to the accounts of all active participants, excluding members of our management executive committee, in part to recognize the risks inherent to their participation in a plan of this nature. We also maintain a nonqualified, unfunded deferred compensation plan that was frozen during 1996, covering substantially fewer than 100 participants, most of whom are retired. In this plan, deferred compensation earns returns tied to market levels of interest rates plus an additional 6 percent return, with a minimum of 12 percent and a maximum of 20 percent, as determined by the plan’s terms.
We mitigate some of our risk of offering the nonqualified plans through investing in vehicles, including company-owned life insurance and prepaid forward contracts in our own common stock, that offset a substantial portion of our economic exposure to the returns of these plans. These investment vehicles are general corporate assets and are marked to market with the related gains and losses recognized in the Consolidated Statements of Operations in the period they occur.
The total change in fair value for contracts indexed to our own common stock recognized in earnings was pretax income of $4 million in each of the three months ended July 28, 2012 and July 30, 2011, and pretax income/(loss) of $15 million and $(3) million for the six months ended July 28, 2012 and July 30, 2011, respectively. For the six months ended July 28, 2012 and July 30, 2011, we invested $13 million and $29 million, respectively, in such investment instruments, and this activity is included in the Consolidated Statements of Cash Flows within other investing activities. Adjusting our position in these investment vehicles may involve repurchasing shares of Target common stock when settling the forward contracts as described in Note 9. The settlement dates of these instruments are regularly renegotiated with the counterparty.
|
Prepaid Forward Contracts on Target Common Stock |
|
|
|
Contractual |
|
|
|
|
|
|
|
|
Number of |
|
Price Paid |
|
Contractual |
|
Total Cash |
|
|
(millions, except per share data) |
|
Shares |
|
per Share |
|
Fair Value |
|
Investment |
|
|
July 30, 2011 |
|
1.4 |
|
$ |
45.43 |
|
$ |
74 |
|
$ |
65 |
|
|
January 28, 2012 |
|
1.4 |
|
44.21 |
|
69 |
|
61 |
|
|
July 28, 2012 |
|
1.2 |
|
44.70 |
|
72 |
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|