CVS 2012 Annual Report Download - page 74

CVS CAREMARK 2012 ANNUAL REPORT
72
Notes to Consolidated Financial Statements
Pension Plans
The Company sponsors nine defined benefit pension plans that cover certain full-time employees. Three of the plans are
tax-qualified plans that are funded based on actuarial calculations and applicable federal laws and regulations. The other
six plans are unfunded nonqualified supplemental retirement plans. All of the plans were frozen in prior periods, except two
of the nonqualified plans.
As of December 31, 2012, the Company’s pension plans had a projected benefit obligation of $758 million and plan assets
of $527 million. As of December 31, 2011, the Company’s pension plans had a projected benefit obligation of $685 million
and plan assets of $463 million. Actual return on plan assets was $62 million and $37 million in 2012 and 2011, respec-
tively. Net periodic pension costs related to these pension plans were $31 million, $49 million and $36 million in 2012, 2011
and 2010, respectively. The net periodic pension costs for 2012 include a curtailment loss of $2 million. The net periodic
pension costs for 2011 and 2010 includes settlement losses of $25 million and $12 million, respectively, due to the impact
of lump sum payouts.
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฀was฀4.0%฀in฀2012฀and฀4.75%฀in฀2011.฀The฀expected฀long-term฀rate฀of฀return฀on฀plan฀assets฀
is determined by using the plan’s 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฀7.25%฀in฀2012,฀2011฀and฀2010.
Historically, the Company used an investment strategy, which emphasized equities in order to produce higher expected
returns, and in the long run, lower expected expense and cash contribution requirements. The qualified pension plan asset
allocation฀targets฀are฀50%฀equity฀and฀50%฀xed฀income.
As฀of฀December฀31,฀2012,฀the฀Company’s฀qualied฀dened฀benet฀pension฀plan฀assets฀consisted฀of฀50%฀equity,฀48%฀xed฀
income,฀and฀2%฀money฀market฀securities฀of฀which฀84%฀were฀classied฀as฀Level฀1฀and฀16%฀as฀Level฀2฀in฀the฀fair฀value฀
hierarchy.฀The฀Company’s฀qualied฀dened฀benet฀pension฀plan฀assets฀as฀of฀December฀31,฀2011฀consisted฀of฀47%฀equity฀
51%฀xed฀income,฀and฀2%฀money฀market฀securities฀of฀which฀82%฀were฀classied฀as฀Level฀1฀and฀18%฀as฀Level฀2฀in฀the฀
fair value hierarchy.
The Company contributed $36 million, $92 million and $65 million to the pension plans during 2012, 2011 and 2010,
respectively. The Company plans to make approximately $33 million in contributions to the pension plans during 2013.
The Company also contributes to a number of multiemployer pension plans under the terms of collective-bargaining
agreements that cover its union-represented employees. The risks of participating in these multiemployer plans are
different from single-employer pension plans in the following aspects: (i) assets contributed to the multiemployer plan by
one employer may be used to provide benefits to employees of other participating employers, (ii) if a participating employer
stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers,
and (iii) if the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to
pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.
None of the multiemployer pension plans the Company participates in are individually significant to the Company. Total
Company contributions to multiemployer pension plans were $12 million, $11 million and $12 million in 2012, 2011 and
2010, respectively.