| RETIREMENT AND OTHER BENEFIT PLANS | 6. RETIREMENT AND OTHER BENEFIT PLANS The Company sponsors pension plans in both the United States and Canada. Under the domestic plans, salaried, management and certain hourly employees’ pension benefits are based on a two-rate formula applied to each year of service. Participants receive the larger of the accrued benefit as of December 31, 2015 (based on service commencing at the date of hire and a 35-year service cap and an average annual salary for the five The Company’s Canadian pension plans cover certain employees based on plan specifications. Under the Canadian plans, employees’ pension benefits are based on the employee’s highest consecutive five years of compensation during the 10 years before retirement. The Company’s funding policy for all plans is to make the minimum annual contributions required by applicable regulations. The Company also maintains an unfunded Supplemental Executive Retirement Plan (“SERP”). In addition to providing pension benefits, the Company sponsors unfunded postretirement life insurance plans that cover both salaried and hourly employees who became eligible for benefits by January 1, 1995. The life insurance plans provide coverage of up to $20,000 for qualifying retired employees. Benefit Obligations The following table sets forth changes in benefit obligations, including all domestic and Canadian plans: Pension Benefits Other Postretirement Benefits ($ thousands) 2020 2019 2020 2019 Benefit obligation at beginning of year $ 388,288 $ 342,192 $ 1,371 $ 1,461 Service cost 8,492 7,219 — — Interest cost 12,205 14,811 41 60 Plan participants’ contribution 7 9 4 6 Plan amendments — 93 — — Actuarial loss (gain) 8,710 58,278 (55) (39) Benefits paid (15,272) (14,399) (112) (117) Settlements (36,747) (20,263) — — Contractual termination benefits — 482 — — Curtailments (95) (90) — — Foreign exchange rate changes (18) (44) — — Benefit obligation at end of year $ 365,570 $ 388,288 $ 1,249 $ 1,371 The accumulated benefit obligation for the United States pension plans was $358.7 million and $379.9 million as of January 30, 2021 and February 1, 2020, respectively. The accumulated benefit obligation for the Canadian pension plans was $4.0 million and $4.3 million as of January 30, 2021 and February 1, 2020, respectively. Pension Benefits Other Postretirement Benefits Weighted–average assumptions used to determine benefit obligations, end of year 2020 2019 2020 2019 Discount rate 3.10 % 3.25 % 3.10 % 3.25 % Rate of compensation increase 3.00 % 3.00 % N/A N/A As of January 30, 2021, the Company is using the PRI-2012 Bottom Quartile mortality table, projected using generational scale MP-2020, an updated base mortality table issued by the Society of Actuaries in 2020, to estimate the plan liabilities. Actuarial losses, related to the change in mortality projection scales from the MP-2019 scale used in 2019, increased the projected benefit obligation by approximately $2.0 million as of January 30, 2021. In the fourth quarter of 2020, a lump sum option was offered to certain former employees, resulting in $35.7 million of lump sum payments and a settlement charge that decreased the net periodic benefit income for 2020 by $1.1 million. During the fourth quarter of 2019, in conjunction with the Company’s expense containment initiatives, a Voluntary Early Retirement Program ("VERP") was offered to pension participants who met certain criteria. A lump sum option was also offered to certain former employees during the fourth quarter of 2019. The VERP and terminated vested lump sums resulted in $19.9 million of lump sum payments, and a settlement charge and curtailment that decreased the net periodic benefit income for 2019 by $2.7 million. Plan Assets Pension assets are managed in accordance with the prudent investor standards of the Employee Retirement Income Security Act (“ERISA”). The plan’s investment objective is to earn a competitive total return on assets, while also ensuring plan assets are adequately managed to provide for future pension obligations. This results in the protection of plan surplus and is accomplished by matching the duration of the projected benefit obligation using leveraged fixed income instruments and, while maintaining an equity commitment, managing an equity overlay strategy. The overlay strategy is intended to protect the managed equity portfolios against adverse stock market environments. The Company delegates investment management of the plan assets to specialists in each asset class and regularly monitors manager performance and compliance with investment guidelines. The Company’s overall investment strategy is to achieve a mix of approximately 97% of investments for long-term growth and 3% for near-term benefit payments with a wide diversification of asset types, fund strategies and fund managers. The target allocations for plan assets for 2020 were 70% equities and 30% debt securities. Allocations may change periodically based upon changing market conditions. Corporate stocks – common did not include any Company stock at January 30, 2021 or February 1, 2020. Assets of the Canadian pension plans, which total approximately $4.6 million at January 30, 2021, were invested 55% in equity funds, 42% in bond funds and 3% in money market funds. The Canadian pension plans did not include any Company stock as of January 30, 2021 or February 1, 2020. A financial instrument’s level within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Refer to further discussion on the fair value hierarchy in Note 15 to the consolidated financial statements. Following is a description of the pension plan investments measured at fair value, including the general classification of such investments pursuant to the valuation hierarchy. ● Cash and cash equivalents include cash collateral and margin as well as money market funds. The fair values are based on unadjusted quoted market prices in active markets with sufficient volume and frequency and therefore are classified within Level 1 of the fair value hierarchy. ● Investments in U.S. government securities, mutual funds, real estate investment trusts, exchange-traded funds, corporate stocks - common, preferred securities and S&P 500 Index put and call options (traded on security exchanges) are classified within Level 1 of the fair value hierarchy because the fair values are based on unadjusted quoted market prices in active markets with sufficient volume and frequency. Interest rate swap agreements and certain U.S. government securities are not traded on an exchange but are based on observable inputs that can be corroborated. Therefore, these investments are classified within Level 2 of the fair value hierarchy. Certain preferred securities were offered in a private placement. The fair value of these investments is based on unobservable prices and therefore, they are classified within Level 3 of the fair value hierarchy. ● The alternative investment fund, with a fair value of $17.5 million and $16.3 million as of January 30, 2021 and February 1, 2020, respectively, is an investment in a pool of long-duration domestic investment grade assets. This investment is measured using net asset value per share, and therefore, is not classified within the fair value hierarchy. ● The unallocated insurance contract is measured at net asset value per share, and therefore, is not classified within the fair value hierarchy. The fair values of the Company’s pension plan assets at January 30, 2021 by asset category are as follows: Fair Value Measurements at January 30, 2021 ($ thousands) Total Level 1 Level 2 Level 3 Asset Cash and cash equivalents $ 9,149 $ 9,149 $ — $ — U.S. government securities 108,733 50,116 58,617 — Interest rate swap agreements (4,597) — (4,597) — Mutual fund 38,064 38,064 — — Exchange-traded funds 119,647 119,647 — — Corporate stocks - common 160,137 160,112 — 25 Preferred securities 2,495 — — 2,495 S&P 500 Index options (6,482) (6,482) — — Total investments in the fair value hierarchy $ 427,146 $ 370,606 $ 54,020 $ 2,520 Investments measured at net asset value: Alternative investment fund 17,522 — — — Unallocated insurance contract 49 — — — Total investments measured at net asset value 17,571 — — — Total investments at fair value $ 444,717 $ 370,606 $ 54,020 $ 2,520 The fair values of the Company’s pension plan assets at February 1, 2020 by asset category are as follows: Fair Value Measurements at February 1, 2020 ($ thousands) Total Level 1 Level 2 Level 3 Asset Cash and cash equivalents $ 31,588 $ 31,588 $ — $ — U.S. government securities 94,285 18,388 75,897 — Mutual fund 32,551 32,551 — — Exchange-traded funds 71,505 71,505 — — Corporate stocks - common 177,743 177,718 — 25 Preferred securities 852 — — 852 S&P 500 Index options 3,252 3,252 — — Total $ 411,776 $ 335,002 $ 75,897 $ 877 Investments measured at net asset value: Alternative investment fund 16,335 — — — Unallocated insurance contract 75 — — — Total investments measured at net asset value 16,410 — — — Total investments at fair value $ 428,186 $ 335,002 $ 75,897 $ 877 The following table sets forth changes in the fair value of plan assets, including all domestic and Canadian plans: Pension Benefits Other Postretirement Benefits ($ thousands) 2020 2019 2020 2019 Fair value of plan assets at beginning of year $ 428,186 $ 381,450 $ — $ — Actual return on plan assets 67,413 81,282 — — Employer contributions 1,148 151 108 111 Plan participants’ contributions 7 9 4 6 Benefits paid (15,272) (14,399) (112) (117) Settlements (36,747) (20,263) — — Foreign exchange rate changes (18) (44) — — Fair value of plan assets at end of year $ 444,717 $ 428,186 $ — $ — Funded Status The over-funded status as of January 30, 2021 and February 1, 2020 for pension benefits was $79.1 million and $39.9 million, respectively. The under-funded status as of January 30, 2021 and February 1, 2020 for other postretirement benefits was $1.2 million and $1.4 million, respectively. Amounts recognized in the consolidated balance sheets consist of: Pension Benefits Other Postretirement Benefits ($ thousands) 2020 2019 2020 2019 Prepaid pension costs (noncurrent assets) $ 88,833 $ 50,660 $ — $ — Accrued benefit liabilities (current liability) (1,896) (2,405) (194) (200) Accrued benefit liabilities (noncurrent liability) (7,790) (8,361) (1,055) (1,171) Net amount recognized at end of year $ 79,147 $ 39,894 $ (1,249) $ (1,371) The projected benefit obligation, the accumulated benefit obligation and the fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets and for pension plans with an accumulated benefit obligation in excess of plan assets, which includes only the Company’s SERP, were as follows: Projected Benefit Obligation Exceeds the Accumulated Benefit Obligation Fair Value of Plan Assets Exceeds the Fair Value of Plan Assets ($ thousands) 2020 2019 2020 2019 End of Year Projected benefit obligation $ 9,686 $ 10,766 $ 9,686 $ 10,766 Accumulated benefit obligation 8,954 9,516 8,954 9,516 Fair value of plan assets — — — — The accumulated postretirement benefit obligation exceeds assets for all of the Company’s other postretirement benefit plans. The amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit income at January 30, 2021 and February 1, 2020 are as follows: Pension Benefits Other Postretirement Benefits ($ thousands) 2020 2019 2020 2019 Components of accumulated other comprehensive loss, net of tax: Net actuarial loss (gain) $ 10,438 $ 33,771 $ (466) $ (507) Net prior service credit (947) (2,093) — — Accumulated other comprehensive loss, net of tax $ 9,491 $ 31,678 $ (466) $ (507) Net Periodic Benefit Income Net periodic benefit income for 2020, 2019 and 2018 for all domestic and Canadian plans included the following components: Pension Benefits Other Postretirement Benefits ($ thousands) 2020 2019 2018 2020 2019 2018 Service cost $ 8,492 $ 7,219 $ 8,995 $ — $ — $ — Interest cost 12,205 14,811 14,236 41 60 59 Expected return on assets (31,498) (27,735) (29,091) — — — Amortization of: Actuarial loss (gain) 2,718 3,904 4,122 (110) (107) (125) Prior service credit (1,354) (1,486) (1,567) — — — Settlement cost 1,353 2,236 324 — — — Curtailments (189) — — — — — Cost of contractual termination benefits — 482 — — — — Total net periodic benefit income $ (8,273) $ (569) $ (2,981) $ (69) $ (47) $ (66) The non-service cost components of net periodic benefit income are included in other income, net in the consolidated statements of earnings (loss). Service cost is included in selling and administrative expenses. Weighted-average assumptions used to determine net periodic benefit income: Pension Benefits Other Postretirement Benefits 2020 2019 2018 2020 2019 2018 Discount rate 3.25 % 4.35 % 4.00 % 3.25 % 4.35 % 4.00 % Rate of compensation increase 3.00 % 3.00 % 3.00 % N/A N/A N/A Expected return on plan assets 7.50 % 7.75 % 8.00 % N/A N/A N/A The net actuarial loss (gain) subject to amortization is amortized on a straight-line basis over the average future service of active plan participants as of the measurement date. The prior service credit is amortized on a straight-line basis over the average future service of active plan participants benefiting under the plan at the time of each plan amendment. The expected long-term rate of return on plan assets is based on historical and projected rates of return for current and planned asset classes in the plan’s investment portfolio. Assumed projected rates of return for each asset class were selected after analyzing experience and future expectations of the returns. The overall expected rate of return for the portfolio was developed based on the target allocation for each asset class. Expected Cash Flows Information about expected cash flows for all pension and postretirement benefit plans follows: Pension Benefits Other Postretirement ($ thousands) Funded Plan SERP Total Benefits Employer Contributions 2021 expected contributions to plan trusts $ 58 $ — $ 58 $ — 2021 expected contributions to plan participants — 1,925 1,925 197 2021 refund of assets (e.g. surplus) to employer 136 — 136 — Expected Benefit Payments — 2021 $ 15,405 $ 1,925 $ 17,330 $ 197 2022 16,883 1,465 18,348 167 2023 15,301 2,094 17,395 141 2024 15,694 247 15,941 119 2025 16,271 270 16,541 99 2026-2030 87,139 1,840 88,979 285 Defined Contribution Plans The Company’s domestic defined contribution 401(k) plan covers salaried and certain hourly employees. Prior to certain plan changes that became effective on January 1, 2019, the Company’s contributions represented a partial matching of employee contributions, generally up to a maximum of 3.5% of the employee’s salary and bonus. Currently, for eligible salaried employees, the Company makes a core contribution of 1.5% and a matching contribution of up to 50% of the first 6% of the employees’ contributions. In addition, the Company has the discretion to contribute up to an additional 2% profit-sharing benefit based on the Company’s performance. The Company’s expense for this plan was $4.0 million in 2020, $5.4 million in 2019, and $4.4 million in 2018. The Company’s Canadian defined contribution plan covers certain salaried and hourly employees. The Company makes contributions for all eligible employees, ranging from 3% to 5% of the employee’s salary. In addition, eligible employees may voluntarily contribute to the plan. The Company’s expense for this plan was $0.1 million in 2020, and $0.2 million in both 2019 and 2018. Deferred Compensation Plan The Company has a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participants generally correspond to the funds offered in the Company’s 401(k) plan and the account balance fluctuates with the investment returns on those funds. The Deferred Compensation Plan permits the deferral of up to 50% of base salary and 100% of compensation received under the Company’s annual incentive plan. The deferrals are held in a separate trust, which has been established by the Company to administer the Deferred Compensation Plan. The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”). The liabilities of the Deferred Compensation Plan of $7.9 million and $8.0 million as of January 30, 2021 and February 1, 2020, respectively, are presented in employee compensation and benefits in the accompanying consolidated balance sheets. The assets held by the trust of $7.9 million and $8.0 million as of January 30, 2021 and February 1, 2020, respectively, are presented within prepaid expenses and other current assets in the accompanying consolidated balance sheets, with changes in the deferred compensation charged to selling and administrative expenses in the accompanying consolidated statements of earnings (loss). Deferred Compensation Plan for Non-Employee Directors Non-employee directors are eligible to participate in a deferred compensation plan, whereby deferred compensation amounts are valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”). Under the plan, each participating director’s account is credited with the number of PSUs equal to the number of shares of the Company’s common stock that the participant could purchase or receive with the amount of the deferred compensation, based upon the fair value (as determined based on the average of the high and low prices) of the Company’s common stock on the last trading day of the fiscal quarter when the cash compensation was earned. Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock and are re-invested in additional PSUs at the next fiscal quarter-end. The PSUs are payable in cash based on the number of PSUs credited to the participating director’s account, valued on the basis of the fair value at fiscal quarter-end on or following termination of the director’s service. The liabilities of the plan of $1.0 million as of January 30, 2021 and $1.5 million as of February 1, 2020 are based on 23,644 and 71,108 outstanding PSUs, respectively, and are presented in other liabilities in the accompanying consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are charged to selling and administrative expenses in the accompanying consolidated statements of earnings (loss). |
