CarMax 2013 Annual Report Download - page 65

COMPONENTS OF NET PENSION EXPENSE
Years Ended February 28 or 29
(In thousands) Pension Plan Restoration Plan Total
2013 2012 2011 2013 2012 2011 2013 2012 2011
Interest cost $ 7,299 $ 6,830 $ 6,541 $ 458 $ 518 $ 520 $ 7,757 $ 7,348 $ 7,061
Expected return on
plan assets (7,591) (6,870) (6,580) ― ― ― (7,591) (6,870) (6,580)
Recognized actuarial
loss
1,200
461 280 ― ― ― 1,200 461 280
N
et pension expense $ 908 $ 421 $ 241 $ 458 $ 518 $ 520 $ 1,366 $ 939 $ 761
CHANGES RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE LOSS
Years Ended February 28 or 29
Pension Plan Restoration Plan Total
(In thousands) 2013 2012 2013 2012 2013 2012
N
et actuarial loss (gain) $ 17,182 $ 35,315 $ (488) $ 471
$ 16,694 $ 35,786
In fiscal 2014, we anticipate that $1.6 million in estimated actuarial losses of the pension plan will be amortized
from accumulated other comprehensive loss. We do not anticipate that any estimated actuarial losses will be
amortized from accumulated other comprehensive loss for the restoration plan.
ASSUMPTIONS USED TO DETERMINE NET PENSION EXPENSE
Years Ended February 28 or 29
Pension Plan Restoration Plan
2013 2012 2011 2013 2012 2011
Discount rate (1) 4.75 % 5.80 % 6.10 % 4.75 % 5.80 % 6.10 %
Expected rate of return on plan assets 7.75 % 7.75 % 7.75 % ― ― ―
(1) For the restoration plan, the discount rate presented is applied to the pre-2004 annuity amounts. A rate of 5.00% is
assumed for post-2004 lump sum amounts paid from the plan.
Assumptions. Underlying both the calculation of the PBO and the net pension expense are actuarial calculations of
each plan’s liability. These calculations use participant-specific information such as salary, age and years of service,
as well as certain assumptions, the most significant being the discount rate, rate of return on plan assets and
mortality rate. We evaluate these assumptions at least once a year and make changes as necessary.
The discount rate used for retirement benefit plan accounting reflects the yields available on high-quality, fixed
income debt instruments. For our plans, we review high quality corporate bond indices in addition to a hypothetical
portfolio of corporate bonds with maturities that approximate the expected timing of the anticipated benefit
payments.
To determine the expected long-term return on plan assets, we consider the current and anticipated asset allocations,
as well as historical and estimated returns on various categories of plan assets. We apply the estimated rate of return
to a market-related value of assets, which reduces the underlying variability in the asset values. The use of expected
long-term rates of return on pension plan assets could result in recognized asset returns that are greater or less than
the actual returns of those pension plan assets in any given year. Over time, however, the expected long-term
returns are anticipated to approximate the actual long-term returns, and therefore, result in a pattern of income and
expense recognition that more closely matches the pattern of the services provided by the employees. Differences
between actual and expected returns, which are a component of unrecognized actuarial gains/losses, are recognized
over the average future expected service of the active employees in the pension plan.
Given the frozen status of the pension and benefit restoration plans, the rate of compensation increases is not
applicable for periods subsequent to December 31, 2008. Mortality rate assumptions are based on the life
expectancy of the population and were updated in fiscal 2011 to account for increases in life expectancy.
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