Safeway 2006 Annual Report Download - page 76

SAFEWAY INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has adopted and implemented an investment policy for the defined benefit pension plans that
incorporates a strategic long-term asset allocation mix designed to meet the Company’s long-term pension
requirements. This asset allocation policy is reviewed annually and, on a regular basis, actual allocations are rebalanced
to the prevailing targets. The following table summarizes actual allocations for Safeway’s plans at year-end 2006 and
2005:
Plan assets
Asset category Target 2006 2005
Equity 65% 68.9% 66.3%
Fixed income 35 30.7 33.0
Cash and other – 0.4 0.7
Total 100% 100.0% 100.0%
The investment policy also emphasizes the following key objectives: (1) maintain a diversified portfolio among asset
classes and investment styles; (2) maintain an acceptable level of risk in pursuit of long-term economic benefit;
(3) maximize the opportunity for value-added returns from active management; and (4) maintain adequate controls
over administrative costs.
To meet these objectives, the Company’s investment policy reflects the following major themes: (1) diversify holdings
to achieve broad coverage of both stock and bond markets; and (2) use active investment managers with disciplined,
clearly defined strategies, while establishing investment guidelines and monitoring procedures for each investment
manager to ensure the characteristics of the portfolio are consistent with the original investment mandate.
Expected rates of return on plan assets were developed by determining projected stock and bond returns and then
applying these returns to the target asset allocations of the employee benefit trusts, resulting in a weighted average
rate of return on plan assets. Equity returns were based primarily on historical returns of the S&P 500 Index. Fixed-
income projected returns were based primarily on historical returns for the broad U.S. bond market.
Safeway expects to contribute approximately $31.8 million to its defined benefit pension plan trusts in 2007.
Retirement Restoration Plan The Retirement Restoration Plan provides death benefits and supplemental income
payments for senior executives after retirement. The Company recognized expense of $5.2 million in 2006, $6.4
million in 2005 and $7.1 million in 2004. The aggregate projected benefit obligation of the Retirement Restoration
Plan was approximately $57.0 million at year-end 2006 and $72.8 million at year-end 2005.
Postretirement Benefits other than Pensions In addition to the Company’s retirement plans and the Retirement
Restoration Plan benefits, the Company sponsors plans that provide postretirement medical and life insurance benefits
to certain employees. Retirees share a portion of the cost of the postretirement medical plans. Safeway pays all the
costs of the life insurance plans. The plans are not funded.
The Company’s accrued postretirement benefit obligation (“APBO”) was $51.7 million at year-end 2006 and $50.3
million at year-end 2005. The APBO represents the actuarial present value of the benefits expected to be paid after
retirement. Postretirement benefit expense was $5.5 million in 2006, $4.2 million in 2005 and $10.3 million in 2004.
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