Famous Footwear 2013 Annual Report Download - page 59

2013 BROWN SHOE COMPANY, INC. FORM 10-K 57
5. RETIREMENT AND OTHER BENEFIT PLANS
The Company sponsors pension plans in both the United States and Canada. The Company’s domestic pension plans cover
substantially all United States employees. Under the domestic plans, salaried, management and certain hourly employees’
pension benefits are based on the employee’s highest consecutive five years of compensation during the 10 years before
retirement. The Company’s Canadian pension plans cover certain employees based on plan specifications. Under the
Canadian plans, employees’ pension benefits are based on the employee’s highest consecutive five years of compensation
during the 10 years before retirement. The Company’s funding policy for all plans is to make the minimum annual
contributions required by applicable regulations.
The Company also maintains an unfunded Supplemental Executive Retirement Plan (“SERP”). As of February 1, 2014,
the projected benefit obligation of this plan was $9.2 million and the accumulated benefit obligation was $7.2 million.
In addition to providing pension benefits, the Company sponsors unfunded defined benefit postretirement life insurance
plans that cover both salaried and hourly employees who became eligible for benefits by January 1, 1995. The life insurance
plans provide coverage of up to twenty-thousand dollars for qualifying retired employees.
Benefit Obligations
The following table sets forth changes in benefit obligations, including all domestic and Canadian plans:
Pension Benefits Other Postretirement Benefits
($ thousands) 2013 2012 2013 2012
Benefit obligation at beginning of year . . . . . . . . . . . . . . . . . . . . $ 290,534 $ 261,459 $ 3,207 $ 3,485
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,638 11,523 – –
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,241 12,727 55 148
Plan participants’ contribution . . . . . . . . . . . . . . . . . . . . . . . . . 12 12 19 13
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 – – –
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,442) 16,259 (2,055) (236)
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,107) (11,464) (107) (203)
Foreign exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . (11) 18 – –
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . . . . $ 279,964 $ 290,534 $ 1,119 $ 3,207
The accumulated benefit obligation for the United States pension plans was $256.0 million and $263.8 million as of
February 1, 2014 and February 2, 2013, respectively. The accumulated benefit obligation for the Canadian pension plans
was $4.7 million and $4.9 million as of February 1, 2014 and February 2, 2013, respectively.
Pension Benefits Other Postretirement Benefits
Weighted–average assumptions used to determine benefit obligations,
end of year 2013 2012 2013 2012
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.00% 4.50% 5.00% 4.50%
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . 3.00% 3.50% N/A N/A
Plan Assets
Pension assets are managed in accordance with the prudent investor standards of the Employee Retirement Income
Security Act (“ERISA”). The plan’s investment objective is to earn a competitive total return on assets, while also ensuring
plan assets are adequately managed to provide for future pension obligations. This results in the protection of plan surplus
and is accomplished by matching the duration of the projected benefit obligation using leveraged fixed income instruments
and, while maintaining a 70% equity commitment, managing an equity overlay strategy. The overlay strategy is intended
to protect the managed equity portfolios against adverse stock market environments. The Company delegates investment
management of the plan assets to specialists in each asset class and regularly monitors manager performance and
compliance with investment guidelines. The Company’s overall investment strategy is to achieve a mix of approximately
95% of investments for long-term growth and 5% for near-term benefit payments with a wide diversification of asset
types, fund strategies, and fund managers. The target allocations for plan assets for 2014 are 70% equities and 30% debt
securities. Allocations may change periodically based upon changing market conditions. Equities did not include any
Company stock at February 1, 2014 or February 2, 2013.
Assets of the Canadian pension plans, which total approximately $5.4 million at February 1, 2014, were invested 57% in
equity funds, 38% in bond funds and 5% in money market funds. The Canadian pension plans did not include any Company
stock as of February 1, 2014 or February 2, 2013.
A financial instrument’s level within the valuation hierarchy is based upon the lowest level of input that is significant to
the fair value measurement. See further discussion on the fair value hierarchy in Note 13 to the consolidated financial
statements. Following is a description of the pension plan investments measured at fair value, including the general
classification of such investments pursuant to the valuation hierarchy.