Annual report pursuant to Section 13 and 15(d)

Postretirement Health Care and Life Insurance Benefits

Postretirement Health Care and Life Insurance Benefits

12 Months Ended

Jan. 28, 2012

Postretirement Medical Plans with Prescription Drug Benefits [Abstract]

Postretirement Health Care and Life Insurance Benefits

In addition to pension and other supplemental benefits, certain retired employees currently are provided with specified health care and life insurance benefits. Eligibility requirements for such benefits vary by division and subsidiary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.

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



	2011			2010
	(millions)
Change in accumulated postretirement benefit obligation
Accumulated postretirement benefit obligation, beginning of year	$	278		$	278
Service cost	—			—
Interest cost	14			15
Actuarial (gain) loss	(3		)	8
Medicare Part D subsidy	2			2
Benefits paid	(25		)	(25		)
Accumulated postretirement benefit obligation, end of year	$	266		$	278
Change in plan assets
Fair value of plan assets, beginning of year	$	—		$	—
Company contributions	25			25
Benefits paid	(25		)	(25		)
Fair value of plan assets, end of year	$	—		$	—
Funded status at end of year	$	(266	)	$	(278	)
Amounts recognized in the Consolidated Balance Sheets at January 28, 2012 and January 29, 2011
Accounts payable and accrued liabilities	$	(29	)	$	(30	)
Other liabilities	(237		)	(248		)
	$	(266	)	$	(278	)
Amounts recognized in accumulated other comprehensive (income) loss at January 28, 2012 and January 29, 2011
Net actuarial gain	$	(23	)	$	(25	)

Net postretirement benefit costs and other amounts recognized in other comprehensive income included the following actuarially determined components:



	2011			2010			2009
	(millions)
Net Periodic Postretirement Benefit Cost
Service cost	$	—		$	—		$	—
Interest cost	14			15			19
Amortization of net actuarial gain	(5		)	(5		)	(7		)
Amortization of prior service credit	—			—			—
	9			10			12
Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Income
Net actuarial (gain) loss	(3		)	8			8
Amortization of net actuarial gain	5			5			7
Amortization of prior service credit	—			—			—
	2			13			15
Total recognized in net periodic postretirement benefit cost and other comprehensive income	$	11		$	23		$	27

The estimated net actuarial gain of the postretirement obligations that will be amortized from accumulated other comprehensive (income) loss into net postretirement benefit cost during 2012 is $(3) million.

As permitted under ASC Subtopic 715-60, “Defined Benefit Plans – Other Postretirement,” 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 plans.

The following weighted average assumptions were used to determine the accumulated postretirement benefit obligations at January 28, 2012 and January 29, 2011:



	2011		2010
Discount rate	4.65	%	5.40	%

The following weighted average assumptions were used to determine the net postretirement benefit costs for the postretirement obligations:



	2011		2010		2009
Discount rate	5.40	%	5.65	%	7.45	%

The postretirement benefit obligation assumptions are evaluated annually and updated as necessary.

The discount rate used to determine the present value of the Company’s accumulated postretirement benefit obligations 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 accumulated postretirement benefit obligations.

The future medical benefits provided by the Company for certain employees are based on a fixed amount per year of service, and the accumulated postretirement benefit obligation is not affected by increases in health care costs. However, the future medical benefits provided by the Company for certain other employees are affected by increases in health care costs.

In March 2010, President Obama signed into law the “Patient Protection and Affordable Care Act” and the “Health Care and Education Affordability Reconciliation Act of 2010” (the “2010 Acts”). Included among the major provisions of these laws is a change in the tax treatment related to the Medicare Part D subsidy. The Company’s postretirement obligations reflect estimated federal subsidies expected to be received under the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Under the 2010 Acts, the Company’s deductions for retiree prescription drug benefits will be reduced by the amount of Medicare Part D subsidies received beginning February 3, 2013. During 2010, the Company recorded a $4 million deferred tax expense to reduce its deferred tax asset as a result of the elimination of the deductibility of retiree health care payments to the extent of tax-free Medicare Part D subsidies that are received.

The 2010 Acts contain additional provisions which impact the accounting for postretirement obligations. Based on the analysis to date, the impact of provisions in the 2010 Acts on the Company’s postretirement obligations has not and is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows. The Company continues to evaluate the impact of the 2010 Acts on the active and retiree benefit plans offered by the Company.

The following provides the assumed health care cost trend rates related to the Company’s accumulated postretirement benefit obligations at January 28, 2012 and January 29, 2011:



	2011	2010
Health care cost trend rates assumed for next year	8.08% - 9.62%	8.38% – 10.08%
Rates to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.0%	5.0%
Year that the rate reaches the ultimate trend rate	2022	2022

The assumed health care cost trend rates have a significant effect on the amounts reported for the accumulated postretirement benefit obligations. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:



	1 – Percentage Point Increase	1 – Percentage Point Decrease
	(millions)
Effect on total of service and interest cost	$1	$(1)
Effect on accumulated postretirement benefit obligations	$15	$(13)

The following table reflects the benefit payments estimated to be funded by the Company and paid from the accumulated postretirement benefit obligations and estimated federal subsidies expected to be received under the Medicare Prescription Drug Improvement and Modernization Act of 2003:



	Expected Benefit Payments		Expected Federal Subsidy
	(millions)
Fiscal Year:
2012	$	28	$	1
2013	27		1
2014	25		1
2015	22		1
2016	21		1
2017-2021	95		4