True Value 2008 Annual Report Download - page 50

notes to consolidated financial statements
2008 FINAN CIA L REP OR T :: 29
Plan Assets
Plan assets are invested in a diversified portfolio consisting
primarily of common stocks, bonds and cash equivalents, which
reflect varying rates of return. The overall rate of return objective
for the plan assets is a reasonable rate consistent with risk levels
established by True Value. The minimum expected rate of return
over a three to five year market cycle is that which equals the
plan’s expected benefit obligations plus the inflation rate. It has
also been True Value’s policy to maintain plan assets equal to at
least 80% of the funding target.
Plan assets are diversified across several investment managers
and are generally invested in liquid funds that are selected to
track broad market equity and bond indices. Investment risk is
also controlled by monitoring plan assets against target allo-
cations on a periodic basis and with continual monitoring of
investment managers’ performance relative to the investment
guidelines established with each investment manager. True Value
utilizes an investment consultant to facilitate meeting its invest-
ment objectives.
The target asset allocation of the plan assets and the actual split
by asset category is as follows for the years ended:
January 3, December 29,
Asset Category Target 2009 2007
Domestic equities 65.0% 63.2% 63.9%
Foreign equities 10.0% 10.1% 11.2%
Fixed income 25.0% 25.9% 24.0%
Cash 0.0% 0.8% 0.9%
Total 100.0% 100.0% 100.0%
Contributions
True Value expects to contribute $4,000 to its qualified pension
plan and $301 to its SRP plan in 2009. True Value also partic-
ipates in union-sponsored defined contribution plans. Costs
related to these plans were $122, $100 and $105 for 2008, 2007
and 2006, respectively.
Estimated Future Benefit Payments
The following benefit payments are expected to be paid:
($ in thousands) Pension Benefits
2009 $ 8,203
2010 8,212
2011 7,132
2012 6,783
2013 6,492
2014 – 2018 27,053
The assumptions used to determine True Value’s pension obliga-
tions for all plans were as follows for the years ended:
January 3, December 29,
2009 2007
Weighted average assumptions:
Discount rate 6.25% 6.00%
Lump sum rate 5.00% 5.50%
The discount rate of 6.25% was primarily based on spot-yields as
of January 3, 2009 from the Citigroup and J.P. Morgan Pension
Discount Curves. Both the Citigroup and J.P. Morgan Pension
Discount Curves were developed using high-quality corpo-
rate bonds.
The plan assumes a future lump sum conversion rate of 5.00%
and 5.50% in the calculation of the Projected Benefit Obligation
(“PBO”) as of January 3, 2009 and December 29, 2007, respectively.
For all frozen plan participants, the benefits under the plan are
defined as a frozen annuity payable at age 65. Upon termination
or retirement, the participant has an option to take the benefit as
a lump sum amount. The lump sum is calculated by converting the
deferred annuity to a lump sum using the mortality and conversion
interest rate set forth in the plan. In general, the lower the lump
sum conversion rate, the higher the lump sum benefit payable.
Since the liability (PBO) is the present value of the future benefit
payments, the assumed lump sum conversion rate will have an
impact on the calculation of the PBO.
The basis used to determine the overall expected return on
assets was an analysis of the historical real (net of inflation)
returns from back to 1926 for a portfolio consisting of large-cap
U.S. equities, corporate bonds, U.S. government bonds and
cash (intended to approximate True Value’s pension asset mix).
Using the historical returns over 30-year periods, the average
($ in thousands)