Retirement Plans

The Company has a funded defined benefit plan (“Pension Plan”) and a defined contribution plan (“Retirement Plan”) which cover substantially all employees who work 1,000 hours or more in a year. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions. In addition, the Company has an unfunded defined benefit supplementary retirement plan (“SERP”), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 2, 2012, the SERP was closed to new participants.

Pension Plan

The following provides a reconciliation of benefit obligations, plan assets, and funded status of the Pension Plan as of January 28, 2012 and January 29, 2011:



	2011			2010
	(millions)
Change in projected benefit obligation
Projected benefit obligation, beginning of year	$	3,024		$	2,879
Service cost	102			99
Interest cost	160			158
Actuarial loss	375			103
Benefits paid	(203		)	(215		)
Projected benefit obligation, end of year	$	3,458		$	3,024
Changes in plan assets
Fair value of plan assets, beginning of year	$	2,804		$	1,865
Actual return on plan assets	93			329
Company contributions	375			825
Benefits paid	(203		)	(215		)
Fair value of plan assets, end of year	$	3,069		$	2,804
Funded status at end of year	$	(389	)	$	(220	)
Amounts recognized in the Consolidated Balance Sheets at January 28, 2012 and January 29, 2011
Other liabilities	$	(389	)	$	(220	)
Amounts recognized in accumulated other comprehensive (income) loss at January 28, 2012 and January 29, 2011
Net actuarial loss	$	1,558		$	1,116
Prior service credit	(1		)	(2		)
	$	1,557		$	1,114

The accumulated benefit obligation for the Pension Plan was $3,178 million as of January 28, 2012 and $2,791 million as of January 29, 2011.

Net pension costs and other amounts recognized in other comprehensive income for the Pension Plan included the following actuarially determined components:



	2011			2010			2009
	(millions)
Net Periodic Pension Cost
Service cost	$	102		$	99		$	81
Interest cost	160			158			173
Expected return on assets	(248		)	(218		)	(187		)
Amortization of net actuarial loss	88			61			—
Amortization of prior service credit	(1		)	(1		)	(1		)
	101			99			66
Other Changes in Plan Assets and Projected Benefit Obligation Recognized in Other Comprehensive Income
Net actuarial (gain) loss	530			(9		)	311
Amortization of net actuarial loss	(88		)	(61		)	—
Amortization of prior service credit	1			1			1
	443			(69		)	312
Total recognized in net periodic pension cost and other comprehensive income	$	544		$	30		$	378

The estimated net actuarial loss and prior service credit for the Pension Plan that will be amortized from accumulated other comprehensive (income) loss into net periodic benefit cost during 2012 are $139 million and $(1) million, respectively.

As permitted under ASC Subtopic 715-30, “Defined Benefit Plans – Pension,” the amortization of any prior service cost is determined using a straight-line amortization of the cost over the average remaining service period of employees expected to receive the benefits under the Pension Plan.

The following weighted average assumptions were used to determine the projected benefit obligations for the Pension Plan at January 28, 2012 and January 29, 2011:



	2011		2010
Discount rate	4.65	%	5.40	%
Rate of compensation increases	4.50	%	4.50	%

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



	2011		2010		2009
Discount rate	5.40	%	5.65	%	7.45	%
Expected long-term return on plan assets	8.00	%	8.75	%	8.75	%
Rate of compensation increases	4.50	%	4.50	%	5.40	%

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.

The Company develops its rate of compensation increase assumption on an age-graded basis 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 the asset diversification and the use of multiple investment managers. The target allocation for plan assets is currently 55% equity securities, 30% debt securities, 10% 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 28, 2012, 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	$	240	$	—	$	240	$	—
Equity securities:
U.S.	805		251		554		—
International	648		—		648		—
Fixed income securities:
U. S. Treasury bonds	128		—		128		—
Other Government bonds	31		—		31		—
Agency backed bonds	5		—		5		—
Corporate bonds	310		—		310		—
Mortgage-backed securities and forwards	112		—		112		—
Asset-backed securities	21		—		21		—
Pooled funds	266		—		266		—
Other types of investments:
Real estate	228		—		—		228
Hedge funds	143		—		—		143
Private equity	162		—		—		162
Total	$	3,099	$	251	$	2,315	$	533

The fair values of the Pension Plan assets as of January 29, 2011, 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	$	381	$	—	$	381	$	—
Equity securities:
U.S.	814		238		576		—
International	517		—		517		—
Fixed income securities:
U. S. Treasury bonds	54		—		54		—
Other Government bonds	28		—		28		—
Agency backed bonds	11		—		11		—
Corporate bonds	267		—		267		—
Mortgage-backed securities and forwards	107		—		107		—
Asset-backed securities	19		—		19		—
Pooled funds	180		—		180		—
Other types of investments:
Real estate	201		—		—		201
Hedge funds	143		—		—		143
Private equity	144		—		—		144
Total	$	2,866	$	238	$	2,140	$	488

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 28, 2012 and January 29, 2011, certain of these investments are generally subject to lock-up periods, ranging from three to fifteen 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 28, 2012 and January 29, 2011, the Pension Plan had unfunded commitments related to certain of these investments totaling approximately $109 million and $133 million, respectively.

The following table sets forth a summary of changes in fair value of the Pension Plan’s level 3 assets for 2011 and 2010:



	2011			2010
	(millions)
Balance, beginning of year	$	488		$	413
Actual gain on plan assets:
Relating to assets still held at the reporting date	9			28
Relating to assets sold during the period	22			18
Purchases	48			69
Sales	(34		)	(40		)
Balance, end of year	$	533		$	488

During 2011 and 2010, the Company made funding contributions to the Pension Plan totaling approximately $375 million and $825 million, respectively. The Company is currently planning to make a funding contribution to the Pension Plan of approximately $150 million in 2012.

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



	(millions)
Fiscal year:
2012	$	251
2013	244
2014	244
2015	245
2016	254
2017-2021	1,292

Supplementary Retirement Plan

The following provides a reconciliation of benefit obligations, plan assets and funded status of the supplementary retirement plan as of January 28, 2012 and January 29, 2011:



	2011			2010
	(millions)
Change in projected benefit obligation
Projected benefit obligation, beginning of year	$	688		$	680
Service cost	6			6
Interest cost	36			37
Actuarial loss	90			22
Benefits paid	(49		)	(57		)
Projected benefit obligation, end of year	$	771		$	688
Change in plan assets
Fair value of plan assets, beginning of year	$	—		$	—
Company contributions	49			57
Benefits paid	(49		)	(57		)
Fair value of plan assets, end of year	—			—
Funded status at end of year	$	(771	)	$	(688	)
Amounts recognized in the Consolidated Balance Sheets at January 28, 2012 and January 29, 2011
Accounts payable and accrued liabilities	$	(55	)	$	(52	)
Other liabilities	(716		)	(636		)
	$	(771	)	$	(688	)
Amounts recognized in accumulated other comprehensive (income) loss at January 28, 2012 and January 29, 2011
Net actuarial loss	$	195		$	113
Prior service credit	(1		)	(2		)
	$	194		$	111

The accumulated benefit obligation for the supplementary retirement plan was $739 million as of January 28, 2012 and $645 million as of January 29, 2011.

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



	2011			2010			2009
	(millions)
Net Periodic Pension Cost
Service cost	$	6		$	6		$	4
Interest cost	36			37			42
Amortization of net actuarial loss	8			3			—
Amortization of prior service credit	(1		)	(1		)	(2		)
	49			45			44
Other Changes in Plan Assets and Projected Benefit Obligation Recognized in Other Comprehensive Income
Net actuarial (gain) loss	90			22			113
Amortization of net actuarial loss	(8		)	(3		)	—
Amortization of prior service credit	1			1			2
	83			20			115
Total recognized in net periodic pension cost and other comprehensive income	$	132		$	65		$	159

The estimated net actuarial loss and prior service credit for the supplementary retirement plan that will be amortized from accumulated other comprehensive (income) loss into net periodic benefit cost during 2012 are $16 million and $(1) million, respectively.

The following weighted average assumptions were used to determine the projected benefit obligations for the supplementary retirement plan at January 28, 2012 and January 29, 2011:



	2011		2010
Discount rate	4.65	%	5.40	%
Rate of compensation increases	4.90	%	4.90	%

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



	2011		2010		2009
Discount rate	5.40	%	5.65	%	7.45	%
Rate of compensation increases	4.90	%	4.90	%	7.20	%

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



	(millions)
Fiscal year:
2012	$	55
2013	57
2014	59
2015	59
2016	62
2017-2021	272

Retirement Plan

The Retirement Plan includes a voluntary savings feature for eligible employees. The Company’s contribution is based on a stated matching contribution rate based on an employee’s eligible savings. The matching contribution rate is higher for those employees not eligible for the Pension Plan than for employees eligible for the Pension Plan. Expense for the Retirement Plan amounted to $10 million for 2011, $9 million for 2010 and $9 million for 2009.

Deferred Compensation Plan

The Company has a deferred compensation plan wherein eligible executives may elect to defer a portion of their compensation each year as either stock credits or cash credits. The Company transfers shares to a trust to cover the number management estimates will be needed for distribution on account of stock credits currently outstanding. At January 28, 2012 and January 29, 2011, the liability under the plan, which is reflected in other liabilities on the Consolidated Balance Sheets, was $45 million and $46 million, respectively. Expense for 2011, 2010 and 2009 was immaterial.