Neiman Marcus 2009 Annual Report Download - page 127

Table of Contents
Assumptions. Significant assumptions related to the calculation of our obligations pursuant to our employee benefit plans
include the discount rate used to calculate the present value of benefit obligations to be paid in the future, the expected long-term rate
of return on assets held by the Pension Plan, the average rate of compensation increase by Pension Plan and SERP Plan participants
and the health care cost trend rate for the Postretirement Plan. We review these assumptions annually based upon currently available
information. The assumptions we utilized in calculating the projected benefit obligations and periodic expense of our Pension Plan,
SERP Plan and Postretirement Plan are as follows:
July 31,
2010
July 31,
2009
July 31,
2008
Pension Plan:
Discount rate 5.20% 5.90% 6.75%
Expected long-term rate of return
on plan assets 8.00% 8.00% 8.00%
Rate of future compensation
increase N/A 4.50% 4.50%
SERP Plan:
Discount rate 5.20% 5.90% 6.75%
Rate of future compensation
increase N/A 4.50% 4.50%
Postretirement Plan:
Discount rate 5.10% 5.80% 6.75%
Initial health care cost trend rate 8.00% 8.00% 8.00%
Ultimate health care cost trend rate 8.00% 8.00% 8.00%
Discount rate. The assumed discount rate utilized is based on a broad sample of Moody's high quality corporate bond yields
as of the measurement date. The projected benefit payments are matched with the yields on these bonds to determine an appropriate
discount rate for the plan. The discount rate is utilized principally in calculating the present values of our benefit obligations and
related expenses.
Expected long-term rate of return on plan assets. The assumed expected long-term rate of return on assets is the weighted
average rate of earnings expected on the funds invested or to be invested by the Pension Plan to provide for the plan's obligations.
During fiscal year 2010, we utilized 8.0% as the expected long-term rate of return on plan assets. We periodically evaluate the
allocation between investment categories of the assets held by the Pension Plan. We estimate the expected average long-term rate of
return on assets based on historical returns, our future asset performance expectations using currently available market and other data
and the counsel of our outside actuaries and advisors. This rate is utilized primarily in calculating the expected return on plan assets
component of the annual pension expense. To the extent the actual rate of return on assets realized over the course of a year is greater
than the assumed rate, that year's annual pension expense is not affected. Rather this gain reduces future pension expense over a
period of approximately 30 years. To the extent the actual rate of return on assets is less than the assumed rate, that year's annual
pension expense is likewise not affected. Rather this loss increases pension expense over approximately 30 years.
Rate of future compensation increase. The assumed average rate of compensation increase is the average annual
compensation increase expected over the remaining employment periods for the participating employees. This rate is utilized
principally in calculating the obligation and annual expense for the Pension and SERP Plans. As a result of the freeze of our benefits
offered to all remaining employees under our Pension Plan and SERP Plan in the third quarter of fiscal year 2010, the rate of future
compensation increase is no longer applicable to the valuation of our liabilities pursuant to these plans.
Health care cost trend rate. The assumed health care cost trend rate represents our estimate of the annual rates of change in
the costs of the health care benefits currently provided by the Postretirement Plan. The health care cost trend rate implicitly considers
estimates of health care inflation, changes in health care utilization and delivery patterns, technological advances and changes in the
health status of the plan participants.
F-34