Saks Fifth Avenue 2010 Annual Report Download - page 78

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SAKS INCORPORATED & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
2010 2009 2008
Weighted-average assumptions used to determine the net periodic benefit expense:
Pension Plan:
Discount rate ........................................................ 5.1% 6.5% 6.5%
Expected long-term rate of return on plan assets ............................. 8.0% 8.0% 8.0%
Rate of compensation increase ........................................... n/a 4.0% 4.0%
SERP
Discount rate ........................................................ 5.5% 6.6% 6.5%
The assumptions used in the determination of the Company’s obligations and benefit expense are based
upon management’s best estimates as of the annual measurement date. The discount rate is primarily used in
calculating the Company’s pension obligation, which is represented by the Accumulated Benefit Obligation
(“ABO”) and the Projected Benefit Obligation (“PBO”) and in calculating net periodic benefit expense. The
discount rate utilized was based upon pension discount curves and bond portfolio curves over a duration that is
similar to the Pension Plan’s expected future cash flows as of the measurement date.
This expected long-term rate of return on plan assets is used primarily in calculating the expected return on
plan assets component of the Company’s net periodic benefit expense. The Company’s estimate of the expected
long-term rate of return considers the historical returns on plan assets, as well as the future expectations of
returns on classes of assets within the target asset allocation of the plan asset portfolio. The expected long-term
rate of return on plan assets is the weighted-average rate of earnings expected on the funds invested or to be
invested to provide for the benefits included in the PBO.
The assumed average rate of compensation increase is the average annual compensation increase expected
over the remaining employment periods for the participating employees and is primarily used in calculating the
PBO and net periodic benefit expense. No assumption was used in 2010 as the Pension Plan was amended to
suspend all future benefit accruals for all active participants.
The Company’s investment strategy is to maintain a diversified portfolio of asset classes with the primary
goal of ensuring that funds are available to meet the Pension Plan’s benefit obligations when they become due,
while maintaining an appropriate level of risk. The Pension Plan’s target asset allocation is determined by the
Company’s Retirement Committee, taking into consideration the amounts and timing of projected liabilities, the
Company’s funding policies, expected returns on various asset categories, as well as the risk characteristics of,
and correlations among, the various asset classes. For the year ended January 29, 2011, the plan’s target asset
allocation was approximately 55% equity, 40% fixed income and 5% real estate. Actual plan asset investment
allocations as of January 29, 2011 and January 30, 2010, by asset category are as follows:
January 29, January 30,
2011 2010
Equity securities ......................................................... 55.3% 63.8%
Fixed income securities ................................................... 40.3% 31.5%
Real estate securities ...................................................... 4.4% 4.7%
Total .............................................................. 100.0% 100.0%
F-28