CVS 2008 Annual Report Download - page 60

56 CVS CAREMARK
Notes to Consolidated Financial Statements
The discount rate is determined by examining the current yields
observed on the measurement date of fi xed-interest, high-quality
investments expected to be available during the period to maturity
of the related benefi ts on a plan by plan basis. The discount rate
for the plans was 6.25% in 2008 and ranged 5.25% to 6.25%
in 2007. 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 2008 and 2007.
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% fi xed income.
The pension plan asset allocation targets for the Pharmacy
Services Segment are 65% equity, 33% fi xed income and 2%
cash equivalents. The Retail Pharmacy Segment’s qualifi ed
defi ned benefi t pension plans asset allocations as of December 31,
2008 were 60% equity, 39% fi xed income and 1% other. The
Pharmacy Services Segment qualifi ed defi ned benefi t pension
plans asset allocations as of December 31, 2008 were 68%
equity, 29% fi xed income and 3% other.
The Company utilized a measurement date of December 31
to determine pension and other postretirement benefi t measure-
ments. The Company plans to make a $29.4 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 $49.3 million
in 2008, $40.0 million in 2007, and $37.6 million in 2006.
The Company also has nonqualifi ed supplemental executive
retirement plans in place for certain key employees.
The Company adopted SFAS No. 158, “Employer’s Accounting
for Defi ned Benefi t Pension and Other Postretirement Plans –
an amendment of FASB Statements No. 87, 88, 106, and
132(R),” effective December 15, 2006. SFAS No. 158 requires
an employer to recognize in its statement of fi nancial position
an asset for a plan’s overfunded status or a liability for a plan’s
underfunded status, measure a plan’s assets and its obligations
that determine its funded status as of the end of the employer’s
fi scal year, and recognize changes in the funded status of a
defi ned benefi t postretirement plan in the year in which the
changes occur. Those changes are reported in comprehensive
income and in a separate component of shareholders’ equity.
The adoption of this statement did not have a material impact
on the Company’s consolidated results of operations, fi nancial
position or cash fl ows.
PENSION PLANS AND OTHER POSTRETIREMENT
BENEFITS
Defi ned 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 nonqualifi ed, 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 contribution under the previously in this
document defi ned contribution plans totaled $117.1 million
in 2008, $80.6 million in 2007, and $63.7 million in 2006.
The Company also sponsors an Employee Stock Ownership
Plan. See Note 8 for additional information about this plan.
Other Postretirement Benefi ts
The Company provides postretirement health care and life
insurance benefi ts 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 health care costs to determine the health care cost
trend rates. As of December 31, 2008 the Company’s postretire-
ment medical plans have an accumulated postretirement benefi t
obligation of $17.1 million. Net periodic benefi t costs related
to these postretirement medical plans were $0.9 million and
$0.8 million for 2008 and 2007, respectively. As of December 31,
2007, the Company’s postretirement medical plans had an
accumulated postretirement benefi t obligation of $18.2 million.
Pension Plans
The Company sponsors nine non-contributory defi ned benefi t
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, 2008, the Company’s qualifi ed defi ned benefi t
plans have a projected benefi t obligation of $545.9 million and
plan assets of $285.8 million. As of December 31, 2007, the
Company’s qualifi ed defi ned benefi t plans had a projected benefi t
obligation of $517.5 million and plan assets of $420.7 million. Net
periodic pension costs related to these qualifi ed benefi t plans were
$9.4 million and $13.6 million in 2008 and 2007, respectively.
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