CarMax 2015 Annual Report Download - page 67

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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 2015 to account for increases in life expectancy. This change increased the
PBO and ABO.
(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 $27.9 million in fiscal 2015, $25.0 million in fiscal 2014 and $23.1 million in fiscal 2013.
(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 $1.0 million in
fiscal 2015, $1.1 million in fiscal 2014 and $0.4 million in fiscal 2013.
(D) Executive Deferred Compensation Plan
Effective January 1, 2011, we established an unfunded nonqualified deferred compensation plan to permit certain
eligible key associates to defer receipt of a portion of their compensation to a future date. This plan also includes a
restorative company contribution designed to compensate the plan participants for any loss of company contributions
under the Retirement Savings 401(k) Plan and the Retirement Restoration Plan due to a reduction in their eligible
compensation resulting from deferrals into the Executive Deferred Compensation Plan. The total cost for this plan
was $0.9 million in fiscal 2015, $0.6 million in fiscal 2014 and $0.4 million in fiscal 2013.