Target 2014 Annual Report Download - page 33

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effect of a 0.5 percentage point decrease in interest rates would be to decrease earnings before income taxes by
$9 million.
In addition, we are exposed to market return fluctuations on our qualified defined benefit pension plans. The value of
our pension liabilities is inversely related to changes in interest rates. A 0.5 percentage point decrease to the weighted
average discount rate would increase annual expense by $29 million. To protect against declines in interest rates, we
hold high-quality, long-duration bonds and interest rate swaps in our pension plan trust. At year-end, we had hedged
50 percent of the interest rate exposure of our funded status.
As more fully described in Note 13 and Note 25 of the Financial Statements, we are exposed to market returns on
accumulated team member balances in our nonqualified, unfunded deferred compensation plans. We control the risk
of offering the nonqualified plans by making investments in life insurance contracts and prepaid forward contracts on
our own common stock that offset a substantial portion of our economic exposure to the returns on these plans. The
annualized effect of a one percentage point change in market returns on our nonqualified defined contribution plans
(inclusive of the effect of the investment vehicles used to manage our economic exposure) would not be significant.
There have been no other material changes in our primary risk exposures or management of market risks since the
prior year.
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