15. COMPANY- SPONSORED BENEFIT PLANS
The Company administers non-contributory defined benefit retirement plans for some non-union employees and union-represented employees as determined by the terms and conditions of collective bargaining agreements. These include several qualified pension plans (the “Qualified Plans”) and non-qualified plans (the “Non-Qualified Plans”). The Non-Qualified Plans pay benefits to any employee that earns in excess of the maximum allowed for the Qualified Plans by Section 415 of the Internal Revenue Code. The Company only funds obligations under the Qualified Plans. Funding for the pension plans is based on a review of the specific requirements and on evaluation of the assets and liabilities of each plan.
In addition to providing pension benefits, the Company provides certain health care benefits for retired employees. The majority of the Company’s employees may become eligible for these benefits if they reach normal retirement age while employed by the Company. Funding of retiree health care benefits occurs as claims or premiums are paid.
The Company recognizes the funded status of its retirement plans on the Consolidated Balance Sheet. Actuarial gains or losses, prior service costs or credits and transition obligations that have not yet been recognized as part of net periodic benefit cost are required to be recorded as a component of AOCI. All plans are measured as of the Company’s fiscal year end.
Amounts recognized in AOCI as of February 1, 2014 and February 2, 2013 consist of the following (pre-tax):
|
|
|
Pension Benefits |
|
Other Benefits |
|
Total |
| ||||||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||||
|
Net actuarial loss (gain) |
|
$ |
857 |
|
$ |
1,201 |
|
$ |
(111 |
) |
$ |
(15 |
) |
$ |
746 |
|
$ |
1,186 |
|
|
Prior service cost (credit) |
|
2 |
|
3 |
|
(35 |
) |
(8 |
) |
(33 |
) |
(5 |
) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Total |
|
$ |
859 |
|
$ |
1,204 |
|
$ |
(146 |
) |
$ |
(23 |
) |
$ |
713 |
|
$ |
1,181 |
|
Amounts in AOCI expected to be recognized as components of net periodic pension or postretirement benefit costs in the next fiscal year are as follows (pre-tax):
|
|
|
Pension Benefits |
|
Other Benefits |
|
Total |
| |||
|
|
|
2014 |
|
2014 |
|
2014 |
| |||
|
Net actuarial loss (gain) |
|
$ |
52 |
|
$ |
(6 |
) |
$ |
46 |
|
|
Prior service cost (credit) |
|
1 |
|
(7 |
) |
(6 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Total |
|
$ |
53 |
|
$ |
(13 |
) |
$ |
40 |
|
Other changes recognized in other comprehensive income in 2013, 2012 and 2011were as follows (pre-tax):
|
|
|
Pension Benefits |
|
Other Benefits |
|
Total |
| |||||||||||||||||||||
|
|
|
2013 |
|
2012 |
|
2011 |
|
2013 |
|
2012 |
|
2011 |
|
2013 |
|
2012 |
|
2011 |
| |||||||||
|
Incurred net actuarial loss (gain) |
|
$ |
(243 |
) |
$ |
(33 |
) |
$ |
451 |
|
$ |
(97 |
) |
$ |
6 |
|
$ |
32 |
|
$ |
(340 |
) |
$ |
(27 |
) |
$ |
483 |
|
|
Amortization of prior service credit (cost) |
|
— |
|
— |
|
(1 |
) |
4 |
|
4 |
|
5 |
|
4 |
|
4 |
|
4 |
| |||||||||
|
Amortization of net actuarial gain (loss) |
|
(102 |
) |
(97 |
) |
(64 |
) |
— |
|
— |
|
2 |
|
(102 |
) |
(97 |
) |
(62 |
) | |||||||||
|
Other |
|
— |
|
— |
|
— |
|
(30 |
) |
— |
|
— |
|
(30 |
) |
— |
|
— |
| |||||||||
|
Total recognized in other comprehensive income |
|
(345 |
) |
(130 |
) |
386 |
|
(123 |
) |
10 |
|
39 |
|
(468 |
) |
(120 |
) |
425 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Total recognized in net periodic benefit cost and other comprehensive income |
|
$ |
(271 |
) |
$ |
(41 |
) |
$ |
456 |
|
$ |
(95 |
) |
$ |
38 |
|
$ |
62 |
|
$ |
(366 |
) |
$ |
(3 |
) |
$ |
518 |
|
Information with respect to change in benefit obligation, change in plan assets, the funded status of the plans recorded in the Consolidated Balance Sheets, net amounts recognized at the end of fiscal years, weighted average assumptions and components of net periodic benefit cost follow:
|
|
|
Pension Benefits |
|
|
|
|
| ||||||||||||
|
|
|
Qualified Plans |
|
Non-Qualified Plans |
|
Other Benefits |
| ||||||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||||
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Benefit obligation at beginning of fiscal year |
|
$ |
3,443 |
|
$ |
3,348 |
|
$ |
221 |
|
$ |
217 |
|
$ |
402 |
|
$ |
378 |
|
|
Service cost |
|
40 |
|
44 |
|
3 |
|
3 |
|
17 |
|
16 |
| ||||||
|
Interest cost |
|
144 |
|
146 |
|
9 |
|
9 |
|
15 |
|
16 |
| ||||||
|
Plan participants’ contributions |
|
— |
|
— |
|
— |
|
— |
|
10 |
|
9 |
| ||||||
|
Actuarial (gain) loss |
|
(308 |
) |
33 |
|
(20 |
) |
3 |
|
(97 |
) |
6 |
| ||||||
|
Benefits paid |
|
(136 |
) |
(131 |
) |
(10 |
) |
(11 |
) |
(25 |
) |
(23 |
) | ||||||
|
Other |
|
— |
|
3 |
|
— |
|
— |
|
(30 |
) |
— |
| ||||||
|
Assumption of Harris Teeter benefit obligation |
|
326 |
|
— |
|
60 |
|
— |
|
2 |
|
— |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Benefit obligation at end of fiscal year |
|
$ |
3,509 |
|
$ |
3,443 |
|
$ |
263 |
|
$ |
221 |
|
$ |
294 |
|
$ |
402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Fair value of plan assets at beginning of fiscal year |
|
$ |
2,746 |
|
$ |
2,523 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Actual return on plan assets |
|
139 |
|
278 |
|
— |
|
— |
|
— |
|
— |
| ||||||
|
Employer contributions |
|
100 |
|
71 |
|
10 |
|
11 |
|
15 |
|
14 |
| ||||||
|
Plan participants’ contributions |
|
— |
|
— |
|
— |
|
— |
|
10 |
|
9 |
| ||||||
|
Benefits paid |
|
(136 |
) |
(131 |
) |
(10 |
) |
(11 |
) |
(25 |
) |
(23 |
) | ||||||
|
Other |
|
— |
|
5 |
|
— |
|
— |
|
— |
|
— |
| ||||||
|
Assumption of Harris Teeter plan assets |
|
286 |
|
— |
|
— |
|
— |
|
— |
|
— |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
Fair value of plan assets at end of fiscal year |
|
$ |
3,135 |
|
$ |
2,746 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
|
Funded status at end of fiscal year |
|
$ |
(374 |
) |
$ |
(697 |
) |
$ |
(263 |
) |
$ |
(221 |
) |
$ |
(294 |
) |
$ |
(402 |
) |
|
Net liability recognized at end of fiscal year |
|
$ |
(374 |
) |
$ |
(697 |
) |
$ |
(263 |
) |
$ |
(221 |
) |
$ |
(294 |
) |
$ |
(402 |
) |
As of February 1, 2014 and February 2, 2013, other current liabilities include $30 and $29, respectively, of net liability recognized for the above benefit plans.
The pension plan assets acquired and liabilities assumed in the Harris Teeter merger did not affect the Company’s net periodic benefit cost in 2013 due to the merger occurring close to year end.
As of February 1, 2014 and February 2, 2013, pension plan assets do not include common shares of The Kroger Co.
|
|
|
Pension Benefits |
|
Other Benefits |
| ||||||||
|
Weighted average assumptions |
|
2013 |
|
2012 |
|
2011 |
|
2013 |
|
2012 |
|
2011 |
|
|
Discount rate — Benefit obligation |
|
4.99 |
% |
4.29 |
% |
4.55 |
% |
4.68 |
% |
4.11 |
% |
4.40 |
% |
|
Discount rate — Net periodic benefit cost |
|
4.29 |
% |
4.55 |
% |
5.60 |
% |
4.11 |
% |
4.40 |
% |
5.40 |
% |
|
Expected return on plan assets |
|
8.50 |
% |
8.50 |
% |
8.50 |
% |
|
|
|
|
|
|
|
Rate of compensation increase — Net periodic benefit cost |
|
2.77 |
% |
2.82 |
% |
2.88 |
% |
|
|
|
|
|
|
|
Rate of compensation increase — Benefit Obligation |
|
2.86 |
% |
2.77 |
% |
2.82 |
% |
|
|
|
|
|
|
The Company’s discount rate assumptions were intended to reflect the rates at which the pension benefits could be effectively settled. They take into account the timing and amount of benefits that would be available under the plans. The Company’s policy for selecting the discount rates as of year-end 2013 and 2012 changed from the policy as of year-end 2011. In 2013 and 2012, the Company’s policy was to match the plan’s cash flows to that of a hypothetical bond portfolio whose cash flow from coupons and maturities match the plan’s projected benefit cash flows. The discount rates are the single rates that produce the same present value of cash flows. The selection of the 4.99% and 4.68% discount rates as of year-end 2013 for pension and other benefits, respectively, represents the hypothetical bond portfolio using bonds with an AA or better rating constructed with the assistance of an outside consultant. In 2011, the Company’s policy was to match the plan’s cash flows to that of a yield curve that provides the equivalent yields on zero-coupon corporate bonds for each maturity. Benefit cash flows due in a particular year can theoretically be “settled” by “investing” them in the zero-coupon bond that matures in the same year. The discount rates are the single rates that produce the same present value of cash flows. The selection of the 4.55% and 4.40% discount rates as of year-end 2011 for pension and other benefits, respectively, represents the equivalent single rates constructed under a broad-market AA yield curve constructed with the assistance of an outside consultant. A 100 basis point increase in the discount rate would decrease the projected pension benefit obligation as of February 1, 2014, by approximately $395.
To determine the expected rate of return on pension plan assets held by the Company for 2013, the Company considered current and forecasted plan asset allocations as well as historical and forecasted rates of return on various asset categories. Due to the Harris Teeter merger occurring close to year end, the expected rate of return on pension plan assets acquired in the Harris Teeter merger did not affect our net periodic benefit costs in 2013. For 2013, 2012 and 2011, the Company assumed a pension plan investment return rate of 8.5%. The Company pension plan’s average rate of return was 8.1% for the 10 calendar years ended December 31, 2013, net of all investment management fees and expenses. The value of all investments in the Company-sponsored defined benefit pension plans, excluding pension plan assets acquired in the Harris Teeter merger, during the calendar year ending December 31, 2013 increased 8.0%, net of investment management fees and expenses. For the past 20 years, the Company’s average annual rate of return has been 9.2%. Based on the above information and forward looking assumptions for investments made in a manner consistent with the Company’s target allocations, the Company believes an 8.5% rate of return assumption was reasonable for 2013, 2012 and 2011.
The Company calculates its expected return on plan assets by using the market-related value of plan assets. The market-related value of plan assets is determined by adjusting the actual fair value of plan assets for gains or losses on plan assets. Gains or losses represent the difference between actual and expected returns on plan investments for each plan year. Gains or losses on plan assets are recognized evenly over a five year period. Using a different method to calculate the market-related value of plan assets would provide a different expected return on plan assets.
The funded status increased in 2013, compared to 2012, due primarily to the increase in the discount rate, return on plan assets and contributions to the plan, offset slightly by the update in the mortality assumption.
The Company uses the RP-2000 projected 2021 mortality table in calculating the pension obligation.
|
|
|
Pension Benefits |
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
Qualified Plans |
|
Non-Qualified Plan |
|
Other Benefits |
| |||||||||||||||||||||
|
|
|
2013 |
|
2012 |
|
2011 |
|
2013 |
|
2012 |
|
2011 |
|
2013 |
|
2012 |
|
2011 |
| |||||||||
|
Components of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Service cost |
|
$ |
40 |
|
$ |
44 |
|
$ |
41 |
|
$ |
3 |
|
$ |
3 |
|
$ |
3 |
|
$ |
17 |
|
$ |
16 |
|
$ |
13 |
|
|
Interest cost |
|
144 |
|
146 |
|
158 |
|
9 |
|
9 |
|
10 |
|
15 |
|
16 |
|
17 |
| |||||||||
|
Expected return on plan assets |
|
(224 |
) |
(210 |
) |
(207 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
| |||||||||
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Prior service cost (credit) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1 |
|
(4 |
) |
(4 |
) |
(5 |
) | |||||||||
|
Actuarial (gain) loss |
|
93 |
|
88 |
|
57 |
|
9 |
|
9 |
|
7 |
|
— |
|
— |
|
(2 |
) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
Net periodic benefit cost |
|
$ |
53 |
|
$ |
68 |
|
$ |
49 |
|
$ |
21 |
|
$ |
21 |
|
$ |
21 |
|
$ |
28 |
|
$ |
28 |
|
$ |
23 |
|
The following table provides the projected benefit obligation (“PBO”), accumulated benefit obligation (“ABO”) and the fair value of plan assets for all Company-sponsored pension plans.
|
|
|
Qualified Plans |
|
Non-Qualified Plan |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
PBO at end of fiscal year |
|
$ |
3,509 |
|
$ |
3,443 |
|
$ |
263 |
|
$ |
221 |
|
|
ABO at end of fiscal year |
|
$ |
3,360 |
|
$ |
3,278 |
|
$ |
256 |
|
$ |
211 |
|
|
Fair value of plan assets at end of year |
|
$ |
3,135 |
|
$ |
2,746 |
|
$ |
— |
|
$ |
— |
|
The following table provides information about the Company’s estimated future benefit payments.
|
|
|
Pension |
|
Other |
| ||
|
2014 |
|
$ |
201 |
|
$ |
16 |
|
|
2015 |
|
$ |
204 |
|
$ |
18 |
|
|
2016 |
|
$ |
203 |
|
$ |
19 |
|
|
2017 |
|
$ |
211 |
|
$ |
21 |
|
|
2018 |
|
$ |
221 |
|
$ |
23 |
|
|
2019 — 2023 |
|
$ |
1,232 |
|
$ |
135 |
|
The following table provides information about the weighted average target and actual pension plan asset allocations.
|
|
|
Target allocations |
|
Actual |
| ||
|
|
|
2013 |
|
2013 |
|
2012 |
|
|
Pension plan asset allocation |
|
|
|
|
|
|
|
|
Global equity securities |
|
14.6 |
% |
15.0 |
% |
19.2 |
% |
|
Emerging market equity securities |
|
5.6 |
|
6.2 |
|
8.9 |
|
|
Investment grade debt securities |
|
11.6 |
|
10.4 |
|
8.1 |
|
|
High yield debt securities |
|
12.7 |
|
12.5 |
|
17.3 |
|
|
Private equity |
|
9.1 |
|
7.7 |
|
6.0 |
|
|
Hedge funds |
|
32.9 |
|
34.2 |
|
27.2 |
|
|
Real estate |
|
3.3 |
|
3.3 |
|
3.3 |
|
|
Other |
|
10.2 |
|
10.7 |
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
Investment objectives, policies and strategies are set by the Pension Investment Committees (the “Committees”) appointed by the CEO. The primary objectives include holding and investing the assets and distributing benefits to participants and beneficiaries of the pension plans. Investment objectives have been established based on a comprehensive review of the capital markets and each underlying plan’s current and projected financial requirements. The time horizon of the investment objectives is long-term in nature and plan assets are managed on a going-concern basis.
Investment objectives and guidelines specifically applicable to each manager of assets are established and reviewed annually. Derivative instruments may be used for specified purposes, including rebalancing exposures to certain asset classes. Any use of derivative instruments for a purpose or in a manner not specifically authorized is prohibited, unless approved in advance by the Committees.
The current target allocations shown represent a combination of the 2013 targets established by the Company in 2012 and allocation targets on assets acquired as part of the merger with Harris Teeter. The Company will rebalance by liquidating assets whose allocation materially exceeds target, if possible, and investing in assets whose allocation is materially below target. If markets are illiquid, the Company may not be able to rebalance to target quickly. To maintain actual asset allocations consistent with target allocations, assets are reallocated or rebalanced periodically. In addition, cash flow from employer contributions and participant benefit payments can be used to fund underweight asset classes and divest overweight asset classes, as appropriate. The Company expects that cash flow will be sufficient to meet most rebalancing needs.
The Company is not required and does not expect to make any contributions to the Company-sponsored defined benefit pension plans in 2014. If the Company does make any contributions in 2014, the Company expects these contributions will decrease its required contributions in future years. Among other things, investment performance of plan assets, the interest rates required to be used to calculate the pension obligations, and future changes in legislation, will determine the amounts of any contributions. The Company expects 2014 expense for Company-sponsored defined benefit pension plans to be approximately $40. In addition, the Company expects 401(k) Retirement Savings Account Plan cash contributions and expense from automatic and matching contributions to participants to increase approximately $30 in 2014 compared to 2013 primarily due to the Harris Teeter merger.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The Company used a 7.10% initial health care cost trend rate and a 4.50% ultimate health care cost trend rate to determine its expense. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:
|
|
|
1% Point |
|
1% Point |
| ||
|
Effect on total of service and interest cost components |
|
$ |
5 |
|
$ |
(4 |
) |
|
Effect on postretirement benefit obligation |
|
$ |
31 |
|
$ |
(26 |
) |
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of February 1, 2014 and February 2, 2013:
Assets at Fair Value as of February 1, 2014
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
Total |
| ||||
|
Cash and cash equivalents |
|
$ |
26 |
|
$ |
— |
|
$ |
— |
|
$ |
26 |
|
|
Corporate Stocks |
|
326 |
|
— |
|
— |
|
326 |
| ||||
|
Corporate Bonds |
|
— |
|
94 |
|
— |
|
94 |
| ||||
|
U.S. Government Securities |
|
— |
|
60 |
|
— |
|
60 |
| ||||
|
Mutual Funds/Collective Trusts |
|
303 |
|
419 |
|
39 |
|
761 |
| ||||
|
Partnerships/Joint Ventures |
|
— |
|
317 |
|
— |
|
317 |
| ||||
|
Hedge Funds |
|
— |
|
— |
|
1,073 |
|
1,073 |
| ||||
|
Private Equity |
|
— |
|
— |
|
243 |
|
243 |
| ||||
|
Real Estate |
|
— |
|
— |
|
96 |
|
96 |
| ||||
|
Other |
|
— |
|
139 |
|
— |
|
139 |
| ||||
|
Total |
|
$ |
655 |
|
$ |
1,029 |
|
$ |
1,451 |
|
$ |
3,135 |
|
Assets at Fair Value as of February 2, 2013
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
Total |
| ||||
|
Cash and cash equivalents |
|
$ |
17 |
|
$ |
— |
|
$ |
— |
|
$ |
17 |
|
|
Corporate Stocks |
|
375 |
|
— |
|
— |
|
375 |
| ||||
|
Corporate Bonds |
|
— |
|
72 |
|
— |
|
72 |
| ||||
|
U.S. Government Securities |
|
— |
|
66 |
|
— |
|
66 |
| ||||
|
Mutual Funds/Collective Trusts |
|
130 |
|
559 |
|
— |
|
689 |
| ||||
|
Partnerships/Joint Ventures |
|
— |
|
378 |
|
— |
|
378 |
| ||||
|
Hedge Funds |
|
— |
|
— |
|
739 |
|
739 |
| ||||
|
Private Equity |
|
— |
|
— |
|
180 |
|
180 |
| ||||
|
Real Estate |
|
— |
|
— |
|
91 |
|
91 |
| ||||
|
Other |
|
— |
|
139 |
|
— |
|
139 |
| ||||
|
Total |
|
$ |
522 |
|
$ |
1,214 |
|
$ |
1,010 |
|
$ |
2,746 |
|
For measurements using significant unobservable inputs (Level 3) during 2013 and 2012, a reconciliation of the beginning and ending balances is as follows:
|
|
|
Hedge Funds |
|
Private Equity |
|
Real Estate |
|
Collective Trusts |
| ||||
|
Ending balance, January 28, 2012 |
|
$ |
579 |
|
$ |
159 |
|
$ |
81 |
|
$ |
— |
|
|
Contributions into Fund |
|
175 |
|
49 |
|
23 |
|
— |
| ||||
|
Realized gains |
|
11 |
|
15 |
|
3 |
|
— |
| ||||
|
Unrealized gains |
|
55 |
|
— |
|
2 |
|
— |
| ||||
|
Distributions |
|
(81 |
) |
(49 |
) |
(22 |
) |
— |
| ||||
|
Other |
|
— |
|
6 |
|
4 |
|
— |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Ending balance, February 2, 2013 |
|
739 |
|
180 |
|
91 |
|
— |
| ||||
|
Contributions into Fund |
|
297 |
|
74 |
|
22 |
|
— |
| ||||
|
Realized gains |
|
7 |
|
12 |
|
11 |
|
— |
| ||||
|
Unrealized gains |
|
71 |
|
17 |
|
— |
|
— |
| ||||
|
Distributions |
|
(88 |
) |
(47 |
) |
(27 |
) |
— |
| ||||
|
Other |
|
— |
|
7 |
|
(1 |
) |
— |
| ||||
|
Assumption of Harris Teeter plan assets |
|
47 |
|
— |
|
— |
|
39 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Ending balance, February 1, 2014 |
|
$ |
1,073 |
|
$ |
243 |
|
$ |
96 |
|
$ |
39 |
|
See Note 8 for a discussion of the levels of the fair value hierarchy. The assets’ fair value measurement level above is based on the lowest level of any input that is significant to the fair value measurement.
The following is a description of the valuation methods used for the plan’s assets measured at fair value in the above tables:
· Cash and cash equivalents: The carrying value approximates fair value.
· Corporate Stocks: The fair values of these securities are based on observable market quotations for identical assets and are valued at the closing price reported on the active market on which the individual securities are traded.
· Corporate Bonds: The fair values of these securities are primarily based on observable market quotations for similar bonds, valued at the closing price reported on the active market on which the individual securities are traded. When such quoted prices are not available, the bonds are valued using a discounted cash flow approach using current yields on similar instruments of issuers with similar credit ratings, including adjustments for certain risks that may not be observable, such as credit and liquidity risks.
· U.S. Government Securities: Certain U.S. Government securities are valued at the closing price reported in the active market in which the security is traded. Other U.S. government securities are valued based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for similar securities, the security is valued under a discounted cash flow approach that maximizes observable inputs, such as current yields of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks.
· Mutual Funds/Collective Trusts: The mutual funds/collective trust funds are public investment vehicles valued using a Net Asset Value (NAV) provided by the manager of each fund. The NAV is based on the underlying net assets owned by the fund, divided by the number of shares outstanding. The NAV’s unit price is quoted on a private market that is not active. However, the NAV is based on the fair value of the underlying securities within the fund, which are traded on an active market, and valued at the closing price reported on the active market on which those individual securities are traded.
· Partnerships/Joint Ventures: These funds consist primarily of U.S. government securities, Corporate Bonds, Corporate Stocks, and derivatives, which are valued in a manner consistent with these types of investments, noted above.
· Hedge Funds: Hedge funds are private investment vehicles valued using a Net Asset Value (NAV) provided by the manager of each fund. The NAV is based on the underlying net assets owned by the fund, divided by the number of shares outstanding. The NAV’s unit price is quoted on a private market that is not active. The NAV is based on the fair value of the underlying securities within the funds, which may be traded on an active market, and valued at the closing price reported on the active market on which those individual securities are traded. For investments not traded on an active market, or for which a quoted price is not publicly available, a variety of unobservable valuation methodologies, including discounted cash flow, market multiple and cost valuation approaches, are employed by the fund manager to value investments. Fair values of all investments are adjusted annually, if necessary, based on audits of the Hedge Fund financial statements; such adjustments are reflected in the fair value of the plan’s assets.
· Private Equity: Private Equity investments are valued based on the fair value of the underlying securities within the fund, which include investments both traded on an active market and not traded on an active market. For those investments that are traded on an active market, the values are based on the closing price reported on the active market on which those individual securities are traded. For investments not traded on an active market, or for which a quoted price is not publicly available, a variety of unobservable valuation methodologies, including discounted cash flow, market multiple and cost valuation approaches, are employed by the fund manager to value investments. Fair values of all investments are adjusted annually, if necessary, based on audits of the private equity fund financial statements; such adjustments are reflected in the fair value of the plan’s assets.
· Real Estate: Real estate investments include investments in real estate funds managed by a fund manager. These investments are valued using a variety of unobservable valuation methodologies, including discounted cash flow, market multiple and cost valuation approaches.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement.
The Company contributed and expensed $148, $140 and $130 to employee 401(k) retirement savings accounts in 2013, 2012 and 2011, respectively. The 401(k) retirement savings account plan provides to eligible employees both matching contributions and automatic contributions from the Company based on participant contributions, compensation as defined by the plan, and length of service.
The Company also administers other defined contribution plans for eligible employees. The cost of these plans was $5, $7 and $6 for 2013, 2012 and 2011, respectively.