LensCrafters 2007 Annual Report Download - page 151

> 150 | ANNUAL REPORT 2007
10. EMPLOYEE BENEFITS
Liability for termination indemnities. With regards to staff leaving indemnities (“TFR”), Italian law
provides for severance payments to employees upon dismissal, resignation, retirement of other
termination of employment. TFR, through December 31, 2006, was considered an unfunded
defined benefit plan. Therefore, through December 31, 2006, the Company accounted for the
defined benefit plan in accordance with EITF 88-1, “Determination of Vested Benefit Obligation for
a Defined Benefit Pension Plan,” using the option to record the vested benefit obligation, which is
the actuarial present value of the vested benefits to which the employee would be entitled if the
employee retired, resigned or were terminated as of the date of the financial statements..
Effective January 1, 2007, the TFR system was reformed, and under the new law, employees are
given the ability to choose where the TFR compensation is invested, whereas such compensation
otherwise would be directed to the National Social Security Institute or Pension Funds. As a result,
contributions under the reformed TFR system are accounted for as a defined contribution plan. The
liability accrued until December 31, 2006 continues to be considered a defined benefit plan,
therefore each year, the Company adjusts its accrual based upon headcount and inflation and
excluding the changes in compensation level.
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, 2007, 2006 and 2005 aggregated, Euro 15.4
million, Euro 12.9 million and Euro 12.0 million respectively.
Qualified pension plans. During fiscal years 2007 and 2006, 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 certain U.S. subsidiaries of the Company (“U.S.
Associates”) 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 U.S. Associates who
work in the Cole Vision 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 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, except for
those who were aged 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.
As of December 31, 2007, the Cole Plan was merged into the existing U.S. Associates Pension Plan.
The projected benefit obligation and the fair value of net assets transferred on such date were Euro
34.2 million (US$ 49.9 million) and Euro 37.6 million (US$ 54.9 million), respectively. Upon the
merger, there were no changes to the provisions or benefit formulas of the plan.
Nonqualified pension plans and agreements. The Company also maintains a nonqualified,
unfunded supplemental executive retirement plan (“SERP”) for participants of its U.S. Associates
qualified pension plan to provide benefits in excess of amounts permitted under the provisions of
prevailing U.S. tax law. The pension liability and expense associated with this plan are accrued