Famous Footwear 2012 Annual Report Download - page 61

2012 BROWN SHOE COMPANY, INC. FORM 10-K 59
5. RETIREMENT AND OTHER BENEFIT PLANS
The Company sponsors pension plans in both the United States and Canada. The Company’s domestic pension plans cover
substantially all United States employees. Under the domestic plans, salaried, management and certain hourly employees’
pension benefits are based on the employee’s highest consecutive five years of compensation during the 10 years before
retirement. The Company’s Canadian pension plans cover certain employees based on plan specifications. Under the
Canadian plans, employees’ pension benefits are based on the employee’s highest consecutive five years of compensation
during the 10 years before retirement. The Company’s funding policy for all plans is to make the minimum annual
contributions required by applicable regulations.
The Company also maintains an unfunded Supplemental Executive Retirement Plan (“SERP”). As of February 2, 2013, the
projected benefit obligation of this plan was $8.4 million and the accumulated benefit obligation was $6.9 million.
In addition to providing pension benefits, the Company sponsors unfunded defined benefit postretirement life insurance
plans that cover both salaried and hourly employees who became eligible for benefits by January 1, 1995. The life insurance
plans provide coverage of up to twenty-thousand dollars for qualifying retired employees.
Benefit Obligations
The following table sets forth changes in benefit obligations, including all domestic and Canadian plans:
Pension Benefits Other Postretirement Benefits
($ thousands) 2012 2011 2012 2011
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . $ 261,459 $ 215,373 $ 3,485 $ 3,230
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,523 9,256 – –
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,727 12,533 148 176
Plan participants’ contribution . . . . . . . . . . . . . . . . . . . . . . . . . 12 11 13 17
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 153 – –
Actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,259 42,746 (236) 315
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,464) (18,590) (203) (253)
Foreign exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . 18 (23) – –
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . $ 290,534 $ 261,459 $ 3,207 $ 3,485
The accumulated benefit obligation for the United States pension plans was $263.8 million and $236.7 million as of
February 2, 2013 and January 28, 2012, respectively. The accumulated benefit obligation for the Canadian pension plans
was $4.9 million and $4.6 million as of February 2, 2013 and January 28, 2012, respectively.
Pension Benefits Other Postretirement Benefits
Weighted-average assumptions used to determine benefit obligations,
end of year 2012 2011 2012 2011
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.50% 4.75% 4.50% 4.75%
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . 3.50% 4.00% N/A N/A
Plan Assets
Pension assets are managed in accordance with the prudent investor standards of the Employee Retirement Income
Security Act (“ERISA”). The plan’s investment objective is to earn a competitive total return on assets, while also ensuring
plan assets are adequately managed to provide for future pension obligations. This results in the protection of plan
surplus and is accomplished by matching the duration of the projected benefit obligation using leveraged fixed income
instruments and, while maintaining a 70% overall (United States and international) equity commitment, managing an equity
overlay strategy. The overlay strategy is intended to protect the managed equity portfolios against adverse stock market
environments. The Company delegates investment management to specialists in each asset class and regularly monitors
manager performance and compliance with investment guidelines. The Company’s overall investment strategy is to achieve
a mix of approximately 95% of investments for long-term growth and 5% for near-term benefit payments with a wide
diversification of asset types, fund strategies and fund managers. The target allocations for plan assets for 2013 are 55%
domestic equities, 30% debt securities and 15% foreign equities. Allocations may change periodically based upon changing
market conditions. Domestic equities did not include any Company stock at February 2, 2013 or January 28, 2012.
Assets of the Canadian pension plans, which total approximately $5.0 million at February 2, 2013, were invested 56% in
equity funds, 40% in bond funds and 4% in money market funds. The Canadian pension plans did not include any Company
stock as of February 2, 2013 or January 28, 2012.
A financial instrument’s level within the valuation hierarchy is based upon the lowest level of input that is significant to
the fair value measurement. See further discussion on the fair value hierarchy in Note 13 to the consolidated financial
statements. Following is a description of the pension plan investments measured at fair value, including the general
classification of such investments pursuant to the valuation hierarchy.