CVS 2007 Annual Report Download - page 61


57 I 2007 Annual Report
Pension Plans and
Other Postretirement Benefits
Defined Contribution Plans
The Company sponsors voluntary 401(k) Savings Plans that cover
substantially all employees who meet plan eligibility requirements.
The Company makes matching contributions consistent with
the provisions of the plans. At the participant’s option, account
balances, including the Company’s matching contribution, can be
moved without restriction among various investment options,
including the Company’s common stock. The Company also
maintains a nonqualified, unfunded Deferred Compensation Plan
for certain key employees. This plan provides participants the
opportunity to defer portions of their compensation and receive
matching contributions that they would have otherwise received
under the 401(k) Savings Plan if not for certain restrictions and
limitations under the Internal Revenue Code. The Company’s
contributions under the above defined contribution plans totaled
$80.6 million in 2007, $63.7 million in 2006 and $64.9 million in
2005. The Company also sponsors an Employee Stock Ownership
Plan. See Note 8 for further information about this plan.
Other Postretirement Benefits
The Company provides postretirement healthcare and life
insurance benefits to certain retirees who meet eligibility require-
ments. The Company’s funding policy is generally to pay covered
expenses as they are incurred. For retiree medical plan account-
ing, the Company reviews external data and its own historical
trends for healthcare costs to determine the healthcare cost trend
rates. As of December 31, 2007, the Company’s postretirement
medical plans have an accumulated postretirement benefit obliga-
tion of $18.2 million. Net periodic benefit costs related to these
postretirement medical plans were $0.8 million and $0.3 million
for 2007 and 2006, respectively. As of December 31, 2006, the
Company’s postretirement medical plans had an accumulated
postretirement benefit obligation of $10.2 million.
Pension Plans
The Company sponsors nine non-contributory defined benefit
pension plans that cover certain full-time employees, which were
frozen in prior periods. These plans are funded based on actuarial
calculations and applicable federal regulations. As of December 31,
2007, the Company’s qualified defined benefit plans have a
projected benefit obligation of $517.5 million and plan assets
of $420.7 million. As of December 31, 2006, the Company’s
qualified defined benefit plans had a projected benefit obligation
of $419.0 million and plan assets of $313.6 million. Net periodic
pension costs related to these qualified benefit plans were
$13.6 million and $17.2 million in 2007 and 2006, respectively.
The discount rate is determined by examining the current
yields observed on the measurement date of fixed-interest, high
quality investments expected to be available during the period
to maturity of the related benefits on a plan by plan basis. The
discount rate for the plans ranged from 5.25% to 6.25% in 2007
and was 6.00% in 2006. The expected long-term rate of return
is determined by using the target allocation and historical returns
for each asset class on a plan-by-plan basis. The expected long-
term rate of return for all plans was 8.5% in 2007 and 2006.
The Company uses an investment strategy, which emphasizes
equities in order to produce higher expected returns, and in the
long run, lower expected expense and cash contribution require-
ments. The pension plan assets allocation targets for the Retail
Pharmacy Segment are 70% equity and 30% fixed income. The
pension plan asset allocation targets for the Pharmacy Services
Segment are 77% equity, 19% fixed income and 4% cash
equivalents. The Retail Pharmacy Segment’s qualified defined
benefit pension plans asset allocations as of December 31,
2007 were 72% equity, 27% fixed income and 1% other. The
Pharmacy Services Segment qualified defined benefit pension
plans asset allocations as of December 31, 2007 were 75%
equity, 23% fixed income and 2% other.
The Company utilized a measurement date of December 31 to
determine pension and other postretirement benefit measure-
ments. The Company plans to make a $1.5 million contribution
to the pension plans during the upcoming year.
Pursuant to various labor agreements, the Company is also
required to make contributions to certain union-administered
pension and health and welfare plans that totaled $40.0 million
in 2007, $37.6 million in 2006 and $15.4 million in 2005. The
Company also has nonqualified supplemental executive retire-
ment plans in place for certain key employees.
The Company adopted SFAS No. 158, “Employer’s Accounting
for Defined Benefit Pension and Other Postretirement Plans-an
amendment of FASB Statements No. 87, 88, 106, and 132(R),”
#9