Kroger 2015 Annual Report Download - page 139

A-65
The Company’s discount rate assumptions were intended to reflect the rates at which the pension
benefits could be effectively settled. They take into account the timing and amount of benefits that
would be available under the plans. The Company’s policy is to match the plan’s cash flows to that of
a hypothetical bond portfolio whose cash flow from coupons and maturities match the plan’s projected
benefit cash flows. The discount rates are the single rates that produce the same present value of cash
flows. The selection of the 4.62% and 4.44% discount rates as of year-end 2015 for pension and other
benefits, respectively, represents the hypothetical bond portfolio using bonds with an AA or better rating
constructed with the assistance of an outside consultant. A 100 basis point increase in the discount rate
would decrease the projected pension benefit obligation as of January 31, 2016, by approximately $438.
To determine the expected rate of return on pension plan assets held by the Company for 2015, the
Company considered current and forecasted plan asset allocations as well as historical and forecasted
rates of return on various asset categories. In 2015 and 2014, the Company decreased the assumed
pension plan investment return rate to 7.44% compared to 8.50% in 2013. The Company pension
plan’s average rate of return was 6.47% for the 10 calendar years ended December 31, 2015, net of all
investment management fees and expenses. The value of all investments in the Qualified Plans during
the calendar year ending December 31, 2015 decreased 0.80%, net of investment management fees and
expenses. For the past 20 years, the Company’s average annual rate of return has been 7.99%. Based
on the above information and forward looking assumptions for investments made in a manner consistent
with the Company’s target allocations, the Company believes a 7.44% rate of return assumption is
reasonable.
The Company calculates its expected return on plan assets by using the market-related value of
plan assets. The market-related value of plan assets is determined by adjusting the actual fair value
of plan assets for gains or losses on plan assets. Gains or losses represent the difference between
actual and expected returns on plan investments for each plan year. Gains or losses on plan assets are
recognized evenly over a five year period. Using a different method to calculate the market-related value
of plan assets would provide a different expected return on plan assets.
On January 31, 2015, the Company adopted new mortality tables based on mortality experience
and assumptions for generational mortality improvement in calculating the Company’s 2015 and 2014
Company sponsored benefit plans obligations. The tables assume an improvement in life expectancy and
increase our current year benefit obligation and future net periodic benefit cost. The Company used the
RP-2000 projected 2021 mortality table in calculating the Company’s 2013 Company sponsored benefit
plans obligations and the 2014 and 2013 Company-sponsored net periodic benefit cost.
The funded status increased in 2015, compared to 2014, due primarily to an increase in the discount
rate and a decrease in plan assets.
The following table provides the components of the Company’s net periodic benefit costs for 2015,
2014 and 2013:
Pension Benefits
Qualified Plans
Non-Qualified
Plans Other Benefits
2015 2014 2013 2015 2014 2013 2015 2014 2013
Components of net periodic benefit cost:
Service cost $ 62 $ 48 $ 40 $ 3 $ 3 $ 3 $ 10 $11 $17
Interest cost 154 169 144 12 13 9 9 13 15
Expected return on plan assets (230) (228) (224) — — — — — —
Amortization of:
Prior service credit — — — — — — (11) (7) (4)
Actuarial (gain) loss 93 46 93 9 4 9 (7) (8) —
Net periodic benefit cost $ 79 $ 35 $ 53 $24 $20 $21 $ 1 $ 9 $28