LensCrafters 2006 Annual Report Download - page 137

10. EMPLOYEE BENEFITS
Liability for termination indemnities -As required by Italian labor legislation, the benefit accrued
by an employee for service to date is payable immediately upon separation. Accordingly, the
undiscounted value of that benefit payable exceeds the actuarial present value of that benefit
because payment is estimated to occur at the employee’s expected termination date. The
Company measures the vested benefit obligation at the actuarial present value of the vested
benefits to which the employee would be entitled if all employees were to resign or be terminated
as of the balance sheet date. Each year, the Company adjusts its accrual based upon headcount,
changes in compensation level and inflation. This liability is not funded. There are also some
termination indemnities in other countries which are provided through payroll tax and other social
contributions in accordance with local statutory requirements. The related charge to earnings for
the years ended December 31, 2004, 2005 and 2006 aggregated Euro 10.4 million, Euro 12.0
million and Euro 12.9 million, respectively.
Qualified pension plans -During fiscal years 2006 and 2005, the Company continued to
sponsor a qualified noncontributory defined benefit pension plan, which provides for the
payment of benefits to eligible past and present employees of the Company upon retirement.
Pension benefits are accrued based on length of service and annual compensation under a
cash balance formula.
This pension plan was amended effective January 1, 2006, granting eligibility to associates who
work in the certain Cole stores, field management, and the related labs and distribution centers.
Additionally,the Company amended the pension accrual formula for the Cole associates, as well
as all new hires for the Company. The new formula has a more gradual benefit accrual pattern.
However, the Pension Plan Protection Act of 2006 will require a change to the Plan’s vesting
schedule effective January 1, 2008.
As of the effective date of the Cole acquisition, the Company assumed sponsorship of the Cole
National Group, Inc. Retirement Plan (“Cole Plan”). This is a qualified noncontributory defined
benefit pension plan that covers Cole employees who have met eligibility service requirements and
are not members of certain collective bargaining units. The pension plan provides for benefits to
be paid to eligible past and present employees at retirement based primarily upon years of service
and the employees’ compensation levels near retirement.
In January 2002, the Cole Plan was frozen for all participants. The average pay for all participants
was frozen as of March 31, 2002, and covered compensation was frozen as of December 31,
2001. Benefit service was also frozen as of March 31, 2002, except for those who were age 50 with
10 years of benefit service as of that same date, whose service will continue to increase as long as
they remain employed by the Company.
Nonqualified pension plans and agreements -The Company also maintains a nonqualified,
unfunded supplemental executive retirement plan (“SERP”) for participants of its qualified pension
plan to provide benefits in excess of amounts permitted under the provisions of prevailing tax law.
The pension liability and expense associated with this plan are accrued using the same actuarial
methods and assumptions as those used for the qualified pension plan.
Starting January 1, 2006, this plan’s benefit provisions were amended to mirror the changes made
to the Company’s qualified pension plan.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS |137 <