True Value 2010 Annual Report Download - page 50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
Financial Report 2010 29
The plan assumes a future lump sum conversion rate of 4.19%
for 2011 distribution and 5.00% thereafter, and 5.00% in the cal-
culation of the PBO as of January 1, 2011 and January 2, 2010,
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 develop the best-estimate range for the
expected long-term rate of return on assets assumption was
the target asset allocation and the current J.P. Morgan long-term
capital market assumptions in a mean-variance model. Returns
are arithmetic averages since the expected long-term rate of
return on assets assumption is applied on a year-by-year basis to
determine the annual cost. To approximate the return, a portfolio
of 60% equity securities and 40% debt securities was assumed.
Using the plan’s expected asset mix, the best-estimate range of
annual rates of return was 6.64% – 7.99%. From this range, True
Value selected a rate of 7.00% as a reasonable estimate for this
assumption based on the historical data described in the above,
as well as information on the historical returns on assets invested
in the pension trust, and expected future conditions. This rate is
net of both investment-related expenses and other administrative
expenses charged to the pension trust.
The average expected future service under the plan during 2010
was approximately 8.2 years.
CONTRIBUTIONS
True Value expects to contribute $5,000 to its qualified pension
plan and $740 to its SRP plan in 2011.
True Value also participates in union-sponsored defined contribu-
tion plans. True Value expects to contribute approximately $125
to these plans in 2011. Costs related to these plans were $121,
$128 and $122 for 2010, 2009 and 2008, respectively.
ESTIMATED FUTURE BENEFIT PAYMENTS
The following benefit payments are expected to be paid:
($ in thousands) Pension Benefits
2011 $ 7,601
2012 6,557
2013 6,519
2014 7,107
2015 6,338
2016-2020 26,017
The assumptions used to determine True Value’s pension obliga-
tions for all plans were as follows for the years ended:
January 1, January 2,
2011 2010
Weighted average assumptions:
Discount rate 4.67% 5.50%
Lump sum rate 4.19% (2011) | 5.0% (2012+) 5.00%
The discount rate of 4.67% was primarily based on spot-yields as
of January 1, 2011 from the Aon Hewitt Pension Discount Curve
(formerly known as the J.P. Morgan Pension Discount Curve).
The Aon Hewitt Pension Discount Curve was developed using
high-quality corporate bonds.
Investments at Fair Value as of January 2, 2010(1)
($ in thousands) Level 1 Level 2 Level 3 Total
Investment Funds:
Domestic equities – Large cap $ 18,902 $ – $ – $ 18,902
Domestic equities – Mid cap 4,122 – – 4,122
Domestic equities – Small cap 2,144 – – 2,144
Foreign equities – International, Large cap 3,684 – – 3,684
Foreign equities – Emerging Markets, Large cap 1,632 – – 1,632
Domestic fixed income 20,507 – – 20,507
Equity Securities – Domestic – Small cap 1,850 42 – 1,892
Collective Trusts – Cash Equivalents – 93 – 93
Total assets at fair value $ 52,841 $ 135 $ – $ 52,976
(1) The2009fair market value table presented above was revised fromthe prior year’s presentation to consistently classify all assets held within highly-liquid mutual funds
for which quoted net asset values were readily determinable in active markets as level 1 investments.