Target 2003 Annual Report Download - page 38

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In addition, we maintain other non-qualified, unfunded plans
that allow participants who are otherwise limited by qualified plan
statutes or regulations to defer compensation and earn returns
either tied to the results of our 401(k) plan investment choices or
market levels of interest rates. We manage the risk of offering
these retirement savings plans to this group of employees through
a variety of means, including investing in vehicles that offset a
substantial portion of our exposure to these returns. We recognized
benefits expense for these non-qualified plans of $86 million and
$11 million in 2003 and 2001, respectively, and income of $20 million
in 2002. Including the impact of these related investments, net
benefits expense resulting from these plans was $28 million,
$16 million and $15 million in 2003, 2002 and 2001, respectively.
We adjusted our position in some of these investment vehicles
resulting in the repurchase of 1.5 million, 0.5 million and 0.5 million
shares of our common stock in 2003, 2002 and 2001, respectively.
Additionally, during 2002, certain non-qualified pension and
survivor benefits owed to current executives were exchanged for
deferrals in a non-qualified plan and certain retired executives
accepted our offer to exchange our obligation to them in a frozen
non-qualified plan for deferrals in the plan. These exchanges
resulted in pre-tax net expense of $33 million ($.02 per share). In
2003, additional retired executives accepted our offer to exchange
our obligation to them in the frozen non-qualified plan for deferrals
in the plan, which resulted in a pre-tax net expense of $17 million
($.01 per share). We expect lower future expenses as a result of
these transactions because they were designed to be economically
neutral or slightly favorable to us.
Participants in our non-qualified plans deferred compensation
of $42 million, $35 million and $33 million in 2003, 2002 and 2001,
respectively.
Pension and Postretirement Health Care Benefits
We have qualified defined benefit pension plans that cover all
employees who meet certain age, length of service and hours
worked per year requirements. We also have unfunded non-
qualified pension plans for employees who have qualified plan
compensation restrictions. Benefits are provided based upon years
of service and the employee’s compensation. Retired employees
also become eligible for certain health care benefits if they meet
minimum age and service requirements and agree to contribute
a portion of the cost.
The Medicare Prescription Drug, Improvements and Modern-
ization Act of 2003 (the Act) was signed into law in December
2003. The Act introduces a prescription drug benefit under
Medicare as well as a federal subsidy to sponsors of retiree health
care benefit plans that provide a prescription drug benefit. The
accumulated benefit obligation and net periodic postretirement
benefit cost reflected in our financial statements do not incorporate
the effects of the Act. The accounting guidance has not been
finalized and we expect the Act to have a minimal impact on our
retirement plans.
Obligations and Funded Status at October 31, 2003
Pension Benefits Postretirement
Non-qualified Health Care
Qualified Plans Plans Benefits
(millions) 2003 2002 2003 2002 2003 2002
Change in Benefit
Obligation
Benefit obligation
at beginning of
measurement period $1,078 $1,014 $23 $53 $ 116 $ 114
Service cost 73 57 1122
Interest cost 74 72 2388
Actuarial loss 164 59 6–72
Benefits paid (56) (50) (3) (5) (10) (10)
Plan amendments –(74) ––––
Settlement –––(29) ––
Benefit obligation
at end of
measurement period $1,333 $1,078 $29 $23 $123 $ 116
Change in Plan Assets
Fair value of plan assets
at beginning of
measurement period $1,058 $1,033 $–$–$–$–
Actual return on
plan assets 203 (79) ––––
Employer contribution 200 154 3510 10
Benefits paid (56) (50) (3) (5) (10) (10)
Fair value of plan
assets at end of
measurement period $1,405 $1,058 $–$–$–$–
Funded status $72$ (20) $(29) $(23) $(123) $(116)
Unrecognized
actuarial loss 587 530 12 612 7
Unrecognized prior
service cost (65) (73) 3311
Net amount recognized $ 594 $ 437 $(14) $(14) $(110) $(108)
Amounts recognized in the statements of financial position
consist of:
Pension Benefits Postretirement
Non-qualified Health Care
Qualified Plans Plans Benefits
(millions) 2003 2002 2003 2002 2003 2002
Prepaid benefit cost $600 $441 $–$–$–$–
Accrued benefit cost (6) (4) (20) (20) (110) (108)
Intangible assets ––34n/a n/a
Accumulated OCI ––32n/a n/a
Net amount recognized $594 $437 $(14) $(14) $(110) $(108)
The accumulated benefit obligation for all defined benefit
pension plans was $1,237 million and $939 million at October 31,
2003 and 2002, respectively. The projected benefit obligation,
accumulated benefit obligation and fair value of plan assets for the
pension plans with an accumulated benefit obligation in excess of
plan assets were $34 million, $30 million and $1 million, respectively,
as of October 31, 2003 and $31 million, $25 million and $2 million,
respectively, as of October 31, 2002.