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