Note 20 - Retirement Plan and Other Benefits

12 Months Ended

Feb. 03, 2024

Notes to Financial Statements

Retirement Benefits [Text Block]

20. Retirement Plans and Other Benefits

Pension and Other Postretirement Plans

We have defined benefit pension plans covering certain of our North American employees. In May 2019, the U.S. qualified pension plan was amended such that all employees who were not participants in the plan as of December 31, 2019, will not become participants after such date. All benefit accruals were frozen as of December 31, 2019 for all plan participants with less than eleven years of service as of that date. For participants with more than eleven years of service as of December 31, 2019, benefit accruals were frozen as of December 31, 2022. Participants continue to accrue interest at a fixed rate of 6% per year.

We also sponsor postretirement medical and life insurance plans, which are available to most of our retired U.S. employees. These plans are contributory and are not funded. These plans are not significant.

The following tables set forth the plans’ changes in benefit obligations and plan assets, funded status, and amounts recognized in the Consolidated Balance Sheets related to our pension plans:

($ in millions)	2023			2022
Change in benefit obligation:
Benefit obligation at beginning of year	$	566		$	674
Service cost		6			14
Interest cost		27			21
Actuarial gains		(6	)		(93	)
Foreign currency translation adjustments		—			(2	)
Benefits paid		(35	)		(48	)
Settlement		(127	)		—
Benefit obligation at end of year	$	431		$	566
Change in plan assets:
Fair value of plan assets at beginning of year	$	546		$	676
Actual return on plan assets		4			(83	)
Employer contributions		3			3
Foreign currency translation adjustments		—			(2	)
Benefits paid		(35	)		(48	)
Settlement		(124	)		—
Fair value of plan assets at end of year	$	394		$	546
Funded status	$	(37	)	$	(20	)
Amounts recognized on the balance sheet:
Other assets	$	4		$	4
Accrued and other liabilities		(3	)		(3	)
Other liabilities		(38	)		(21	)
	$	(37	)	$	(20	)

The Canadian qualified pension plan’s assets exceeded its accumulated benefit obligation for both 2023 and 2022. Our non-qualified pension plans have an accumulated benefit obligation in excess of plan assets, as these plans are unfunded. Accordingly, the table below reflects the U.S. qualified and non-qualified plans. 

($ in millions)	2023		2022
Projected benefit obligation	$	400	$	533
Accumulated benefit obligation		400		533
Fair value of plan assets		359		509

The following table provides the amounts recognized in AOCL on a pre-tax basis related to the pension plans:

($ in millions)
Net actuarial loss at beginning of year	$	329
Amortization of net loss		(11	)
Loss arising during the year		19
Settlement charge		(75	)
Net actuarial loss at end of year	$	262

The actuarial losses recognized during 2023 were primarily driven by lower actual return as compared with the expected return on plan assets and updated assumptions based on recent experience, partially offset by an increase in discount rates applied against future expected benefit payments, which resulted in a decrease in the benefit obligation for the pension benefit plans.

During the fourth quarter of 2023, as part of our efforts to reduce pension plan obligations, we transferred approximately $109 million of our U.S. Qualified pension plan registered assets and liabilities to an insurance company through the purchase of a group annuity contract, under which an insurance company is required to directly pay and administer pension payments to certain of our pension plan participants, or their designated beneficiaries. In connection with this transaction, we recorded a non-cash pretax settlement charge of $75 million. The settlement charge was calculated based on the total of the lump sum payments and the amount paid to the insurance company. This settlement charge accelerated the recognition of previously unrecognized losses in AOCL.

The following weighted-average assumptions were used to determine the benefit obligations under the plans:

	2023			2022
Discount rate		5.2	%		5.0	%
Rate of compensation increase (1)		3.0	%		3.6	%

(1) The rate of compensation increase for 2023 relates only to Canadian pension plan, as the other plans are frozen.

Pension expense is actuarially calculated annually based on data available at the beginning of each year. The expected return on plan assets is determined by multiplying the expected long-term rate of return on assets by the market-related value of plan assets for the U.S. qualified pension plan and market value for the Canadian qualified pension plan. The market-related value of plan assets is a calculated value that recognizes investment gains and losses in fair value related to equities over three or five years, depending on which computation results in a market-related value closer to market value. Market-related value for the U.S. qualified plan was $513 million and $618 million for 2023 and 2022, respectively.

Assumptions used in the calculation of net benefit cost include the discount rate selected and disclosed at the end of the previous year, as well as other assumptions detailed in the table below:

	2023			2022			2021
Discount rate		5.0	%		3.2	%		2.5	%
Rate of compensation increase (1)		3.0	%		3.6	%		3.6	%
Expected long-term rate of return on assets		5.6	%		4.8	%		5.3	%

(1) The rate of compensation increase for 2023 relates only to Canadian pension plan, as the other plans are frozen.

The expected long-term rate of return on invested plan assets is based on the plans’ weighted-average target asset allocation, as well as historical and future expected performance of those assets. The target asset allocation is selected to obtain an investment return that is sufficient to cover the expected benefit payments and to reduce the variability of our future contributions.

The following are the components of net periodic pension benefit cost. Service cost is recognized as a component of SG&A and the remaining pension and postretirement expense components are recognized as part of Other (expense) income, net. ​

($ in millions)	2023			2022			2021
Service cost	$	6		$	14		$	16
Interest cost		27			21			18
Expected return on plan assets		(29	)		(31	)		(35	)
Amortization of net loss		11			10			10
Settlement charge		75			—			—
Net benefit expense	$	90		$	14		$	9

The mortality assumption used to value the 2023 and 2022 U.S. pension obligations was the Pri-2012 mortality table with generational projection using MP-2021 for both males and females. For years ended February 3, 2024 and January 28, 2023, we used the 2014 CPM Private Sector mortality table projected generationally with Scale CPM-B for both males and females to value its Canadian pension obligations

Plan Assets

The target composition of our U.S. qualified pension plan assets is 70% fixed-income securities, 28.5% equities, and 1.5% real estate. We may alter the asset allocation targets from time to time depending on market conditions and the funding requirements of the pension plan. This current asset allocation has and is expected to limit volatility with regard to the funded status of the plan, but may result in higher pension expense due to the lower long-term rate of return associated with fixed-income securities. Due to market conditions and other factors, actual asset allocations may vary from the target allocation outlined above. The target composition of our Canadian qualified pension plan assets is 95% fixed-income securities and 5% equities. We believe plan assets are invested in a conservative manner with the same overall objective and investment strategy as noted below for the U.S. pension plan. The bond portfolio is comprised of government and corporate bonds chosen to match the duration of the pension plan’s benefit payment obligations. This current asset allocation will limit future volatility.

We believe plan assets are invested in a conservative manner with an objective of providing a total return that, over the long term, provides sufficient assets to fund benefit obligations, taking into account our expected contributions and the level of funding risk deemed appropriate. Our investment strategy seeks to diversify assets among classes of investments with differing rates of return, volatility, and correlation in order to reduce funding risk. Diversification within asset classes is also utilized to ensure that there are no significant concentrations of risk in plan assets and to reduce the effect that the return on any single investment may have on the entire portfolio.

Valuation of Investments

Commingled trust funds are valued at the net asset value of units held by the plan at year end. Stocks and mutual funds traded on U.S. and Canadian security exchanges are valued at closing market prices on the measurement date. Each category of U.S. and Canadian plan assets is classified within the same level of the fair value hierarchy for 2023 and 2022.

The fair values of the U.S. pension plan assets at February 3, 2024 and January 28, 2023 were as follows: ​

($ in millions)	Level 1		Level 2		Level 3		2023 Total		2022 Total
Cash	$	1	$	—	$	—	$	1	$	2
Cash equivalents		—		3		—		3		1
Commingled funds:
Equity securities		—		91		—		91		130
Fixed-income securities		—		241		—		241		341
Real estate securities		—		5		—		5		8
Corporate stock		11		—		—		11		17
Mutual fund		7		—		—		7		10
Total assets at fair value	$	19	$	340	$	—	$	359	$	509

The fair values of the Canadian pension plan assets at  February 3, 2024 and January 28, 2023 were as follows:

($ in millions)	Level 1		Level 2		Level 3		2023 Total		2022 Total
Cash equivalents	$	—	$	7	$	—	$	7	$	6
Equity securities:
Canadian and international		3		—		—		3		3
Fixed-income securities:
Cash matched bonds		—		25		—		25		28
Total assets at fair value	$	3	$	32	$	—	$	35	$	37

Contributions and Expected Payments

We were not required to make any contributions to the U.S. qualified pension plan in 2023 and 2022. We do not anticipate making any contributions to the U.S. qualified pension plan in 2024 due to the strong funded status of the plan, however we continually evaluate the amount and timing of any potential contributions based on market conditions and other factors. We paid $3 million during 2023 and 2022 related to our unfunded non-qualified pension plans.

Estimated future benefit payments for each of the next five years and the five years thereafter are as follows:

($ in millions)
2024	$	46
2025		34
2026		33
2027		32
2028		32
2029 - 2033		145

Savings Plans

We have a 401(k) plan that is available to employees whose primary place of employment is the U.S., and another plan that is available to employees whose primary place of employment is in Puerto Rico. With the acquisition of WSS in 2021, we became the sponsor of the 401(k) plan for WSS employees. The charges for matching contributions were not significant for any of the periods presented.