Macy's 2008 Annual Report Download - page 88

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The estimated net actuarial gain of the postretirement obligations that will be amortized from accumulated
other comprehensive income into net postretirement benefit cost during 2009 is $6 million.
As permitted under SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than
Pensions,” the amortization of any prior service cost is determined using a straight-line amortization of the cost
over the average remaining service period of employees expected to receive benefits under the plan.
The following weighted average assumptions were used to determine benefit obligations for the
postretirement obligations at January 31, 2009 and February 2, 2008:
2008 2007
Discount rate ........................................................... 7.45% 6.25%
The following weighted average assumptions were used to determine net postretirement benefit expense for
the postretirement obligations:
2008 2007 2006
Discount rate prior to change in measurement date ............................... – 5.85% 5.70%
Discount rate subsequent to change in measurement date .......................... 6.25% 5.95% –
The postretirement obligation assumptions are evaluated annually and updated as necessary. The discount
rate used to determine the present value of the Company’s future postretirement obligations is based on a yield
curve constructed from a portfolio of high quality corporate debt securities with various maturities. Each year’s
expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby
generating the overall discount rate for postretirement obligations.
The future medical benefits provided by the Company for certain employees are based on a fixed amount
per year of service, and the accumulated postretirement benefit obligation is not affected by increases in health
care costs. However, the future medical benefits provided by the Company for certain other employees are
affected by increases in health care costs.
The following provides the assumed health care cost trend rates related to the Company’s postretirement
obligations at January 31, 2009 and February 2, 2008:
2008 2007
Health care cost trend rates assumed for next year .......... 7.17% – 11.57% 7.33% – 12.03%
Rates to which the cost trend rate is assumed to decline
(the ultimate trend rate) ............................. 5.0% 5.0%
Year that the rate reaches the ultimate trend rate ........... 2022 2022
The assumed health care cost trend rates have a significant effect on the amounts reported for the
postretirement obligations. A one-percentage-point change in the assumed health care cost trend rates would
have the following effects:
1 – Percentage
Point Increase
1 – Percentage
Point Decrease
(millions)
Effect on total of service and interest cost ....................... $ 1 $ (1)
Effect on postretirement benefit obligations ...................... $12 $(10)
F-40