CarMax 2014 Annual Report Download - page 68

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ASSUMPTIONS USED TO DETERMINE NET PENSION EXPENSE
Years Ended February 28 or 29
Pension Plan Restoration Plan
2014 2013 2012 2014 2013 2012
Discount rate (1) 4.30 % 4.75 % 5.80 % 4.30 % 4.75 % 5.80 %
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 4.50% is
assumed for post-2004 lump sum amounts paid from the plan for fiscal 2014 and fiscal 2013. For fiscal 2012 and prior
years, a rate of 5.00% was 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 life expectancy of all plan participants.
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.
(B) Retirement Savings 401(k) Plan
We sponsor a 401(k) plan for all associates meeting certain eligibility criteria. In conjunction with the pension plan
curtailments, enhancements were made to the 401(k) plan effective January 1, 2009. The enhancements increased
the maximum salary contribution for eligible associates and increased our matching contribution. Additionally, an
annual company-funded contribution regardless of associate participation was implemented, as well as an additional
company-funded contribution to those associates meeting certain age and service requirements. The total cost for
company contributions was $25.0 million in fiscal 2014, $23.1 million in fiscal 2013 and $20.9 million in fiscal
2012.
(C) Retirement Restoration Plan
Effective January 1, 2009, we replaced the frozen restoration plan with a new non-qualified retirement plan for
certain senior executives who are affected by Internal Revenue Code limitations on benefits provided under the
Retirement Savings 401(k) Plan. Under this plan, these associates may continue to defer portions of their
compensation for retirement savings. We match the associates’ contributions at the same rate provided under the
401(k) plan, and also provide the annual company-funded contribution made regardless of associate participation, as
well as the additional company-funded contribution to the associates meeting the same age and service
requirements. This plan is unfunded with lump sum payments to be made upon the associate’s retirement. The total
cost for this plan was $1.1 million in fiscal 2014, $0.4 million in fiscal 2013 and $0.5 million in fiscal 2012.