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 are provided through defined contribution plans.

Retirement expenses, excluding settlement charges, included the following components:



	2016			2015			2014
	(millions)
401(k) Qualified Defined Contribution Plan	$	94		$	88		$	89
Non-Qualified Defined Contribution Plan	2			2			2
Pension Plan	(83		)	(54		)	(64		)
Supplementary Retirement Plan	31			41			38
	$	44		$	77		$	65

In 2016, the Company changed the method used to estimate the service and interest cost components of net periodic benefit costs for the Pension Plan and SERP. The new method uses a full yield curve approach in the estimation of these components of net periodic benefit costs. Under this approach, the Company applies discounting using individual spot rates from the yield curve composed of the rates of return from a portfolio of high quality corporate debt securities available at the measurement date. These spot rates align to each of the projected benefit obligations and service cost cash flows. Historically, the Company estimated the service and interest cost components using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligations.

The Company made this change to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest costs. The Company accounted for this change as a change in estimate prospectively starting in 2016. The discount rates that would have been used to measure the 2016 service and interest cost components of net periodic benefit costs as of the beginning of the year under the single weighted-average discount rate was 4.17% and 4.23%, respectively. The 2016 reduction in service cost and interest cost for the Pension Plan and SERP associated with this change was approximately $36 million.

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. Beginning January 1, 2014, the Company 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.

The liability related to the qualified plan matching contribution, which is reflected in accounts payable and accrued liabilities on the Consolidated Balance Sheets, was $102 million at January 28, 2017 and $97 million January 30, 2016. Expense related to matching contributions for the qualified plan amounted to $94 million for 2016, $88 million for 2015 and $89 million for 2014.

At January 28, 2017 and January 30, 2016, the liability under the non-qualified plan, which is reflected in other liabilities on the Consolidated Balance Sheets, was $20 million and $13 million, respectively. The liability related to the non-qualified plan matching contribution, which is reflected in accounts payable and accrued liabilities on the Consolidated Balance Sheets, was $2 million at January 28, 2017 and January 30, 2016. Expense related to matching contributions for the non-qualified plan amounted to $2 million for 2016 and 2015. In connection with the non-qualified plan, the Company had mutual fund investments at January 28, 2017 and January 30, 2016 of $20 million and $13 million, respectively, 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, 2015, no additional compensation is eligible for deferral. The Company has transferred shares to a trust to cover the number estimated for distribution on account of stock credits currently outstanding. At January 28, 2017 and January 30, 2016, the liability under the plan, which is reflected in other liabilities on the Consolidated Balance Sheets, was $37 million and $39 million, respectively. Expense for 2016, 2015 and 2014 was immaterial.

Pension Plan

The following provides a reconciliation of benefit obligations, plan assets, and funded status of the Pension Plan as of January 28, 2017 and January 30, 2016:



	2016			2015
	(millions)
Change in projected benefit obligation
Projected benefit obligation, beginning of year	$	3,585		$	3,966
Service cost	5			6
Interest cost	108			137
Actuarial (gain) loss	55			(282		)
Benefits paid	(284		)	(242		)
Projected benefit obligation, end of year	3,469			3,585
Changes in plan assets
Fair value of plan assets, beginning of year	3,256			3,636
Actual return on plan assets	402			(138		)
Company contributions	—			—
Benefits paid	(284		)	(242		)
Fair value of plan assets, end of year	3,374			3,256
Funded status at end of year	$	(95	)	$	(329	)
Amounts recognized in the Consolidated Balance Sheets at January 28, 2017 and January 30, 2016
Other liabilities	$	(95	)	$	(329	)

Amounts recognized in accumulated other comprehensive loss at January 28, 2017 and January 30, 2016
Net actuarial loss	$	1,232		$	1,451

The accumulated benefit obligation for the Pension Plan was $3,464 million as of January 28, 2017 and $3,574 million as of January 30, 2016.

Net pension costs, settlement charges and other amounts recognized in other comprehensive loss for the Pension Plan included the following actuarially determined components:



	2016			2015			2014
	(millions)
Net Periodic Pension Cost
Service cost	$	5		$	6		$	6
Interest cost	108			137			151
Expected return on assets	(227		)	(235		)	(246		)
Amortization of net actuarial loss	31			38			25
Amortization of prior service credit	—			—			—
	(83		)	(54		)	(64		)

Settlement charges	68			—			—

Other Changes in Plan Assets and Projected Benefit Obligation Recognized in Other Comprehensive Loss
Net actuarial (gain) loss	(120		)	92			491
Amortization of net actuarial loss	(31		)	(38		)	(25		)
Amortization of prior service credit	—			—			—
Settlement charges	(68		)	—			—
	(219		)	54			466
Total recognized	$	(234	)	$	—		$	402

The estimated net actuarial loss for the Pension Plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2017 is $33 million.

The following weighted average assumptions were used to determine the projected benefit obligations for the Pension Plan at January 28, 2017 and January 30, 2016:



	2016		2015
Discount rate	4.00	%	4.17	%
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:



	2016		2015		2014
Discount rate used to measure service cost	3.79% - 4.26%		3.55	%	4.50	%
Discount rate used to measure interest cost	2.96% - 3.30%		3.55	%	4.50	%
Expected long-term return on plan assets	7.00	%	7.00	%	7.50	%
Rate of compensation increases	4.10	%	4.10	%	4.10	%

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.

Due to settlement accounting and re-measurements during 2016, the discount rate used to measure service cost and the discount rate to measure interest cost varied between periods. The table above shows the range of rates used to determine net periodic expense for the Pension Plan.

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 January 31, 2015, the Company 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 28, 2017, 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)
Short term investments	$	14		$	—	$	14		$	—
Money market funds	74			74		—			—
Equity securities:
U.S. stocks	309			309		—			—
U.S. pooled funds (a)	654			446		—			—
International pooled funds (a)	649			131		—			—
Fixed income securities:
U. S. Treasury bonds	194			—		194			—
Other Government bonds	40			—		40			—
Agency backed bonds	24			—		24			—
Corporate bonds	453			—		453			—
Mortgage-backed securities	85			—		85			—
Asset-backed securities	17			—		17			—
Pooled funds	461			461		—			—
Other types of investments:
Real estate (a)	223			—		—			—
Private equity (a)	186			—		—			—
Derivatives in a positive position	13			—		13			—
Derivatives in a negative position	(19		)	—		(19		)	—
Total	$	3,377		$	1,421	$	821		$	—

(a) Certain investments that are measured at fair value using the net asset value per share as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.

The fair values of the Pension Plan assets as of January 30, 2016, 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	$	15		$	15	$	—		$	—
Short term investments	36			—		36			—
Money market funds	46			46		—			—
Equity securities:
U.S. stocks	280			280		—			—
U.S. pooled funds (a)	391			207		—			—
International pooled funds (a)	575			336		—			—
Fixed income securities:
U. S. Treasury bonds	233			—		233			—
Other Government bonds	41			—		41			—
Agency backed bonds	31			—		31			—
Corporate bonds	433			—		433			—
Mortgage-backed securities	112			—		112			—
Asset-backed securities	28			—		28			—
Pooled funds	427			427		—			—
Other types of investments:
Real estate (a)	238			—		—			—
Hedge funds (a)	179			—		—			—
Private equity (a)	188			—		—			—
Derivatives in a positive position	15			—		15			—
Derivatives in a negative position	(22		)	—		(22		)	—
Total	$	3,246		$	1,311	$	907		$	—

Corporate bonds consist primarily of investment grade bonds of U.S. issuers from diverse industries.

The fair value of certain pooled funds including equity securities, real estate, hedge funds and private equity investments represents the reported net asset value of shares or underlying assets of the investment as a practical expedient to estimate fair value. International equity pooled funds seek to provide long-term capital growth and income by investing in equity securities of non-U.S. companies located both in developed and emerging markets. There are generally no redemption restrictions or unfunded commitments related to these equity securities.

Real estate investments include several funds which seek risk-adjusted return by providing a stable, income-driven rate of return over the long term with high potential for growth of net investment income and appreciation of value. The real estate investments are diversified across property types and geographical areas primarily in the United States of America. Private equity investments have an objective of realizing aggregate long-term returns in excess of those available from investments in the public equity markets. Private equity investments generally consist of limited partnerships in the United States of America, Europe and Asia. 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. Hedge fund investments seek to provide strong downside protection qualities and to produce long-term risk-adjusted returns with low volatility through active asset management among a select group of U.S. and non-U.S. investment partnerships and companies, managed funds, separately managed accounts, securities and commodities held in segregated accounts and other investment vehicles.

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, 2017 and January 30, 2016, 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 28, 2017 and January 30, 2016, the Pension Plan had unfunded commitments related to certain of these investments totaling $72 million and $96 million, respectively.

The Company does not anticipate making funding contributions to the Pension Plan in 2017.

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



	(millions)
Fiscal year
2017	$	383
2018	309
2019	299
2020	286
2021	246
2022-2026	1,113

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, 2017 and January 30, 2016:



	2016			2015
	(millions)
Change in projected benefit obligation
Projected benefit obligation, beginning of year	$	823		$	920
Service cost	—			—
Interest cost	22			31
Actuarial (gain) loss	26			(70		)
Benefits paid	(124		)	(58		)
Projected benefit obligation, end of year	747			823
Change in plan assets
Fair value of plan assets, beginning of year	—			—
Company contributions	124			58
Benefits paid	(124		)	(58		)
Fair value of plan assets, end of year	—			—
Funded status at end of year	$	(747	)	$	(823	)
Amounts recognized in the Consolidated Balance Sheets at January 28, 2017 and January 30, 2016
Accounts payable and accrued liabilities	$	(86	)	$	(138	)
Other liabilities	(661		)	(685		)
	$	(747	)	$	(823	)
Amounts recognized in accumulated other comprehensive loss at January 28, 2017 and January 30, 2016
Net actuarial loss	$	248		$	261
Prior service cost	8			8
	$	256		$	269

The accumulated benefit obligation for the supplementary retirement plan was $747 million as of January 28, 2017 and $823 million as of January 30, 2016.

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



	2016			2015			2014
	(millions)
Net Periodic Pension Cost
Service cost	$	—		$	—		$	—
Interest cost	22			31			33
Amortization of net actuarial loss	9			10			5
Amortization of prior service credit	—			—			—
	31			41			38

Settlement charges	30			—			—

Other Changes in Plan Assets and Projected Benefit Obligation Recognized in Other Comprehensive Loss
Net actuarial (gain) loss	26			(70		)	170
Prior service cost	—			—			—
Amortization of net actuarial loss	(9		)	(10		)	(5		)
Amortization of prior service credit	—			—			—
Settlement charges	(30		)	—			—
	(13		)	(80		)	165
Total recognized	$	48		$	(39	)	$	203

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 2017 is $8 million.

The following weighted average assumption was used to determine the projected benefit obligations for the supplementary retirement plan at January 28, 2017 and January 30, 2016:



	2016		2015
Discount rate	4.07	%	4.23	%

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



	2016	2015		2014
Discount rate used to measure interest cost	2.65% - 3.16%	3.55	%	4.50	%

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.

Due to settlement accounting and re-measurements during 2016, the discount rate used to measure interest cost varied between periods. The table above shows the range of rates used to determine net periodic expense 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
2017	$	86
2018	78
2019	46
2020	48
2021	48
2022-2026	228