Macy's 2013 Annual Report Download - page 34

Table of Contents
The Pension Protection Act of 2006 provides the funding requirements for the Pension Plan which are different from the employer's accounting for the
plan as outlined in ASC Topic 715. No funding contributions were required, and the Company made no funding contributions to the Pension Plan in 2013.
As of the date of this report, the Company does not anticipate making funding contributions to the Pension Plan in 2014. Management believes that, with
respect to the Company's current operations, cash on hand and funds from operations, together with available borrowing under its credit facility and other
capital resources, will be sufficient to cover the Company's Pension Plan cash requirements in both the near term and also over the longer term.
At February 1, 2014, the Company had unrecognized actuarial losses of $931 million for the Pension Plan and $176 million for the SERP. The
unrecognized losses for the Pension Plan and the SERP will be recognized as a component of pension expense in future years in accordance with ASC Topic
715, and is expected to impact 2014 Pension and SERP income by approximately $31 million. The Company generally amortizes unrecognized gains and
losses on a straight-line basis over the average remaining lifetime of participants using the corridor approach.
The calculation of pension expense and pension liabilities requires the use of a number of assumptions. Changes in these assumptions can result in
different expense and liability amounts, and future actual experience may differ significantly from current expectations. The Company believes that the most
critical assumptions relate to the long-term rate of return on plan assets (in the case of the Pension Plan), the discount rate used to determine the present value of
projected benefit obligations and the weighted average rate of increase of future compensation levels.
As of February 2, 2013, the Company lowered the assumed annual long-term rate of return for the Pension Plan's assets from 8.00% to 7.50% based on
expected future returns on the portfolio. The Company develops its expected long-term rate of return assumption by evaluating input from several professional
advisors taking into account the asset allocation of the portfolio and long-term asset class return expectations, as well as long-term inflation assumptions.
Pension expense increases or decreases as the expected rate of return on the assets of the Pension Plan decreases or increases, respectively. Lowering or raising
the expected long-term rate of return on the Pension Plan's assets by 0.25% would increase or decrease the estimated 2014 pension expense by approximately $8
million.
The Company discounted its future pension obligations using a rate of 4.50% at February 1, 2014, compared to 4.15% at February 2, 2013. The
discount rate used to determine the present value of the Company's Pension Plan and SERP 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 Pension Plan and SERP obligations. As the discount rate is reduced or increased,
pension liability would increase or decrease, respectively, and future pension expense would decrease or increase, respectively. Lowering the discount rate by
0.25% (from 4.50% to 4.25%) would increase the projected benefit obligation at February 1, 2014 by approximately $99 million and would decrease estimated
2014 pension expense by approximately $2 million. Increasing the discount rate by 0.25% (from 4.50% to 4.75%) would decrease the projected benefit
obligation at February 1, 2014 by approximately $92 million and would increase estimated 2014 pension expense by approximately $2 million.
The assumed weighted average rate of increase in future compensation levels was 4.1% at February 1, 2014 and 4.5% at February 2, 2013 for the
Pension Plan, and 4.9% at February 2, 2013 for the SERP. The Company develops its rate of compensation increase assumption based on recent experience
and reflects an estimate of future compensation levels taking into account general increase levels, seniority, promotions and other factors. Pension liabilities
and future pension expense both increase or decrease as the weighted average rate of increase of future compensation levels is increased or decreased,
respectively. Increasing or decreasing the assumed weighted average rate of increase of future compensation levels by 0.25% would increase or decrease the
projected benefit obligation at February 1, 2014 by approximately $1 million and the change to estimated 2014 pension expense would be less than $1 million.
New Pronouncements
The Company does not anticipate that the adoption of recent accounting pronouncements will have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
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