True Value 2007 Annual Report Download - page 50

2007 FINANCIAL REPORT | 29
N O T E S T O
CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
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
investment objectives.
The target asset allocation of the plan assets and the actual split
by asset category is as follows for the years ended:
December 29, December 30,
Asset Category Target 2007 2006
Domestic equities 65.0% 63.9% 62.1%
Foreign equities 10.0% 11.2% 11.6%
Fixed income 25.0% 24.0% 23.0%
Cash 0.0% 0.9% 3.3%
Total 100.0% 100.0% 100.0%
Contributions
True Value expects to contribute $1,000 to its qualified pension
plan and $425 to its SRP plan in 2008. True Value also partici-
pates in union-sponsored defined contribution plans. Costs
related to these plans were $100, $105 and $75 for 2007, 2006
and 2005, respectively.
Estimated Future Benefit Payments
The following benefit payments are expected to be paid:
($ in thousands) Pension Benefits
2008 $9,174
2009 8,682
2010 8,299
2011 7,791
2012 7,291
2013 – 2017 30,484
The assumptions used to determine True Value’s pension
obligations for all plans were as follows for the years ended:
December 29, December 30,
2007 2006
Weighted average assumptions:
Discount rate 6.00% 5.75%
Lump sum rate 5.00% 5.50%
The discount rate of 6.0% was primarily based on spot-yields as
of December 29, 2007 from the Citigroup Pension Discount
Curve, in conjunction with interest rate trends from Moody’s Aa
bonds. The Citigroup Pension Discount Curve was developed
using high-quality corporate bonds.
The plan assumes a future lump sum conversion rate of 5.0% and
5.5% in the calculation of the Projected Benefit Obligation
(“PBO”) as of December 29, 2007 and December 30, 2006,
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 mor-
tality 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 conver-
sion 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
returns for this portfolio over 30-year periods were calculated –
the calculated 25th and 75th percentile were 4.6% and 6.4%,
respectively. With the inflation assumption (3.0%) and the adjust-
ment for expected fees paid from the pension trust (1.0%), the
25th and 75th percentile nominal yields are 6.6% and 8.4%. The
True Value Company Defined Benefit Pension Plan assumes an
actuarial rate of return of 8.0%.
The average expected future service under the plan during 2007
was approximately 7.56 years.
True Value also contributes to the True Value Company Employee
Savings and Compensation Deferral Plan (the “401k Plan”) in
accordance with IRS regulations. Under the 401k Plan, each par-
ticipant may elect to contribute an amount up to 50% of the
participant’s annual compensation, not to exceed $15.5, $15
and $14 per year for 2007, 2006 and 2005, respectively. Also,
plan participants who are 50 years of age or older may elect to
make additional catch-up contributions not to exceed $5 for
both 2007 and 2006 and $4 for 2005. The total participants’
deferred compensation including True Value’s contributions to
the participants’ balances may not exceed $45, $44 and $42 in