Target 2004 Annual Report Download - page 37

35
Pension and Postretirement Health Care Benefits
We have a qualified defined benefit pension plan that covers all U.S.
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 restric-
tions. 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. Prior to
the end of 2004, but after the measurement date, we merged our
three qualified U.S. pension plans into one plan. The expected impact
of this merger on future accounting results is immaterial.
The Medicare Prescription Drug, Improvements and Modernization
Act of 2003 (the Act) was signed into law in December 2003. As a
result of the Act we recorded a reduction in our accumulated post-
retirement benefit obligation of $7 million in 2004. In addition, the
expense amounts shown in the table below reflect a $1 million reduc-
tion due to the amortization of the actuarial gain and reduction in
interest cost due to the effects of the Act.
Obligations and Funded Status at October 31, 2004
Pension Benefits Postretirement
Non-qualified Health Care
Qualified Plans Plans Benefits
(millions) 2004 2003 2004 2003 2004 2003
Change in Benefit
Obligation
Benefit obligation
at beginning of
measurement period $1,333 $1,078 $29 $23 $123 $116
Service cost 78 73 1132
Interest cost 82 74 2278
Actuarial loss 68 164 46(6) 7
Benefits paid (65) (56) (3) (3) (13) (10)
Plan amendments 19 —1—(7) —
Settlement ——————
Benefit obligation
at end of
measurement period $1,515 $1,333 $34 $29 $107 $123
Change in Plan Assets
Fair value of plan assets
at beginning of
measurement period $1,405 $1,058 $— $— $ — $ —
Actual return on
plan assets 157 203 ————
Employer contribution 201 200 3313 10
Benefits paid (65) (56) (3) (3) (13) (10)
Fair value of plan
assets at end of
measurement period $1,698 $1,405 $— $— $ — $ —
Funded status $183$72 $(34) $(29) $(107) $(123)
Unrecognized
actuarial loss 584 587 15 12 612
Unrecognized prior
service cost (39) (65) 23—1
Net amount recognized $ 728 $ 594 $(17) $(14) $(101) $(110)
Amounts recognized in the Statements of Financial Position
consist of:
Pension Benefits Postretirement
Non-qualified Health Care
Qualified Plans Plans Benefits
(millions) 2004 2003 2004 2003 2004 2003
Prepaid benefit cost $733 $600 $— $— $ — $ —
Accrued benefit cost (11) (6) (24) (20) (101) (110)
Intangible assets ——23n/a n/a
Accumulated OCI 6—53n/a n/a
Net amount recognized $728 $594 $(17) $(14) $(101) $(110)
The accumulated benefit obligation for all defined benefit pension
plans was $1,501 million and $1,237 million at October 31, 2004 and
2003, 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
$49 million, $45 million and $5 million, respectively, as of October 31,
2004 and $34 million, $30 million and $1 million, respectively, as of
October 31, 2003.
Net Pension and Postretirement Health Care Benefits Expense
Postretirement
Pension Benefits Health Care Benefits
(millions) 2004 2003 2002 2004 2003 2002
Service cost benefits
earned during
the period $ 79 $ 74 $ 58 $3 $2 $2
Interest cost on
projected benefit
obligation 84 75 75 788
Expected return
on assets (122) (114) (108) ———
Recognized losses 36 18 10 111
Recognized prior
service cost (7) (7) 1 ———
Settlement/curtailment
charges 1— (12) (7) ——
Tot al $ 71 $ 46 $ 24 $ 4 $11 $11
The amortization of any prior service cost is determined using a
straight-line amortization of the cost over the average remaining service
period of employees expected to receive benefits under the plan.
Curtailment gains recorded in 2004 were a result of the sale of Marshall
Field’s and Mervyn’s. These curtailment gains are included in the gain
on disposal of discontinued operations as a result of freezing the
benefits for Marshall Field’s and Mervyn’s employees and retaining the
related assets and obligations of the plans.