Macy's 2014 Annual Report Download - page 35

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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 2014. As of the date of this report, the Company does not
anticipate making funding contributions to the Pension Plan in 2015. 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 January 31, 2015, the Company had unrecognized actuarial losses of $1,397 million for the Pension Plan and
$341 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 2015 Pension and SERP
net periodic benefit costs by approximately $49 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) and the discount rate used to determine the present value of
projected benefit obligations.
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 then-expected future returns on the portfolio. As of January 31, 2015, the Company
further lowered the assumed annual long-term rate of return for the Pension Plan's assets from 7.50% to 7.00% based on
expected future returns on the portfolio of assets. 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 2015
pension expense by approximately $8 million.
The Company discounted its future pension obligations using a rate of 3.55% at January 31, 2015, compared to
4.50% at February 1, 2014. 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 3.55% to 3.30%) would increase the projected benefit
obligation at January 31, 2015 by approximately $126 million and would decrease estimated 2015 pension expense by
approximately $3 million. Increasing the discount rate by 0.25% (from 3.55% to 3.80%) would decrease the projected
benefit obligation at January 31, 2015 by approximately $116 million and would increase estimated 2015 pension expense
by approximately $3 million.
New Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers
(Topic 606), which clarifies the principles for recognizing revenue. The guidance is applicable to all contracts with
customers regardless of industry-specific or transaction-specific fact patterns. Further, the guidance requires improved and
additional disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of
revenue that is recognized. The standard is currently anticipated to be effective for the Company beginning in the first
quarter of fiscal 2017, including interim periods within that fiscal year, and early adoption is not permitted. Upon becoming
effective, the Company will apply the amendments in the updated standard either retrospectively to each prior reporting
period presented, or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of
initial application. The Company is currently evaluating the impact, and the method of adoption, that this standard will
have on its consolidated financial position, results of operations, and cash flows.
The Company does not anticipate that the adoption of any other recent accounting pronouncements will have a
material impact on the Company's consolidated financial position, results of operations or cash flows.