RETIREMENT AND OTHER BENEFIT PLANS

The Company sponsors pension plans in both the United States and Canada. The Company’s domestic pension plans cover substantially all United States employees. Under the domestic plans, salaried, management and certain hourly employees’ pension benefits are based on a two-rate formula applied to each year of service. Participants receive the larger of the accrued benefit as of December 31, 2015 (based on service commencing at the date of hire and a 35-year service cap and an average annual salary for the five highest consecutive years during the last 10 year period) and the benefit calculated under the current plan provisions using pay and service from the date of hire. Generally, under the current plan provisions, a participant receives credit for one year of service for each 365 days of employment as an eligible employee with the Company commencing after the employee's date of participation in the plan, up to 30 years. A service credit of 0.825% is applied to that portion of the average annual salary for the last 10 years that does not exceed “covered compensation,” which is the 35-year average compensation subject to FICA tax based on a participant’s year of birth, and a service credit of 1.425% is applied to that portion of the average salary during those 10 years that exceeds said level.

The Company’s Canadian pension plans cover certain employees based on plan specifications. Under the Canadian plans, employees’ pension benefits are based on the employee’s highest consecutive five years of compensation during the 10 years before retirement. The Company’s funding policy for all plans is to make the minimum annual contributions required by applicable regulations. The Company also maintains an unfunded Supplemental Executive Retirement Plan (“SERP”).

In addition to providing pension benefits, the Company sponsors unfunded defined benefit postretirement life insurance plans that cover both salaried and hourly employees who became eligible for benefits by January 1, 1995. The life insurance plans provide coverage of up to $20 thousand dollars for qualifying retired employees.

Benefit Obligations

The following table sets forth changes in benefit obligations, including all domestic and Canadian plans:



	Pension Benefits						Other Postretirement Benefits
($ thousands)	2017			2016			2017			2016
Benefit obligation at beginning of year	$	340,278		$	326,077		$	1,666		$	1,411
Service cost	9,705			8,288			—			—
Interest cost	14,948			15,275			68			76
Plan participants’ contribution	11			11			7			9
Plan amendments	(2,985		)	316			—			—
Actuarial loss	18,505			11,155			40			357
Benefits paid	(13,703		)	(19,853		)	(187		)	(187		)
Settlement gain	—			(1,304		)	—			—
Contractual termination benefits	—			77			—			—
Curtailments	(10,534		)	—			—			—
Foreign exchange rate changes	244			236			—			—
Benefit obligation at end of year	$	356,469		$	340,278		$	1,594		$	1,666

The accumulated benefit obligation for the United States pension plans was $346.9 million and $320.1 million as of February 3, 2018 and January 28, 2017, respectively. The accumulated benefit obligation for the Canadian pension plans was $4.2 million and $3.8 million as of February 3, 2018 and January 28, 2017, respectively.



	Pension Benefits				Other Postretirement Benefits
Weighted–average assumptions used to determine benefit obligations, end of year	2017		2016		2017		2016
Discount rate	4.00	%	4.40	%	4.00	%	4.40	%
Rate of compensation increase	3.00	%	3.00	%	N/A		N/A

As of February 3, 2018, the Company is using the RP-2014 Bottom Quartile tables, projected using generational scale MP-2017, an updated projection scale issued by the Society of Actuaries in 2017, grading to 0.75% by 2033, to estimate the plan liabilities. Actuarial gains, related to the change in mortality projection scales, reduced the projected benefit obligation by approximately $3.2 million as of February 3, 2018.

During 2014, the Company announced amendments to the domestic qualified pension plan and the SERP, including certain changes to eligibility and service period requirements as well as changes to the benefit formula, including the calculation of participants' final average compensation. Certain changes became effective in January 2015, while other changes became effective in January 2016. These plan amendments decreased the pension liability by $3.0 million as of February 3, 2018 and increased the liability by $0.3 million as of January 28, 2017. In addition, during 2017, the Company announced changes to the domestic qualified pension plan that will become effective in January 2019. Except for grandfathered employees and certain hourly associates in our retail divisions, final average compensation, taxable covered compensation and credit service for purposes of determining accrued pension benefits will be frozen as of December 31, 2018. These plan changes resulted in a curtailment, which decreased the pension liability by $10.5 million as of February 3, 2018 and increased the net periodic benefit income by $2.2 million.

Plan Assets

Pension assets are managed in accordance with the prudent investor standards of the Employee Retirement Income Security Act (“ERISA”). The plan’s investment objective is to earn a competitive total return on assets, while also ensuring plan assets are adequately managed to provide for future pension obligations. This results in the protection of plan surplus and is accomplished by matching the duration of the projected benefit obligation using leveraged fixed income instruments and, while maintaining an equity commitment, managing an equity overlay strategy. The overlay strategy is intended to protect the managed equity portfolios against adverse stock market environments. The Company delegates investment management of the plan assets to specialists in each asset class and regularly monitors manager performance and compliance with investment guidelines. The Company’s overall investment strategy is to achieve a mix of approximately 97% of investments for long-term growth and 3% for near-term benefit payments with a wide diversification of asset types, fund strategies and fund managers. The target allocations for plan assets for 2017 were 70% equities and 30% debt securities. Allocations may change periodically based upon changing market conditions. Equities did not include any Company stock at February 3, 2018 or January 28, 2017.

Assets of the Canadian pension plans, which total approximately $4.7 million at February 3, 2018, were invested 55% in equity funds, 38% in bond funds and 7% in money market funds. The Canadian pension plans did not include any Company stock as of February 3, 2018 or January 28, 2017.

A financial instrument’s level within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Refer to further discussion on the fair value hierarchy in Note 14 to the consolidated financial statements. Following is a description of the pension plan investments measured at fair value, including the general classification of such investments pursuant to the valuation hierarchy.


•	Cash and cash equivalents include cash collateral and margin as well as money market funds. The fair values are based on unadjusted quoted market prices in active markets with sufficient volume and frequency and therefore are classified within Level 1 of the fair value hierarchy.

•

Investments in U.S. government securities, mutual funds, real estate investment trusts, exchange-traded funds, corporate stocks - common, preferred securities and S&P 500 Index put and call options (traded on security exchanges) are classified within Level 1 of the fair value hierarchy because the fair values are based on unadjusted quoted market prices in active markets with sufficient volume and frequency.


•	Interest rate swap agreements are valued at fair value based on vendor-quoted pricing for which inputs are observable and can be corroborated; therefore, these are classified within Level 2 of the fair value hierarchy.

•

The alternative investment fund, with a fair value of $13.4 million and $12.1 million as of February 3, 2018 and January 28, 2017, respectively, is an investment in a pool of long-duration domestic investment grade assets. This investment is valued at fair value based on vendor-quoted pricing for which inputs are observable and can be corroborated and therefore, are classified within Level 2 of the fair value hierarchy.


•	The unallocated insurance contract is valued at contract value, which approximates fair value; therefore, this contract is classified within Level 3 of the fair value hierarchy. The unallocated insurance contract fair value was $0.1 million as of both February 3, 2018 and January 28, 2017.

The fair values of the Company’s pension plan assets at February 3, 2018 by asset category are as follows:



				Fair Value Measurements at February 3, 2018
($ thousands)	Total			Level 1			Level 2		Level 3
Asset
Cash and cash equivalents	$	8,998		$	8,998		$	—	$	—
U.S. government securities	98,027			98,027			—		—
Mutual fund	41,344			41,344			—		—
Real estate investment trusts	1,412			1,412			—		—
Exchange-traded funds	68,362			68,362			—		—
Corporate stocks - common	175,928			175,928			—		—
Preferred securities	703			703			—		—
S&P 500 Index options	(1,186		)	(1,186		)	—		—
Alternative investment fund	13,412			—			13,412		—
Unallocated insurance contract	81			—			—		81
Total	$	407,081		$	393,588		$	13,412	$	81

The fair values of the Company’s pension plan assets at January 28, 2017 by asset category are as follows:



				Fair Value Measurements at January 28, 2017
($ thousands)	Total			Level 1		Level 2			Level 3
Asset
Cash and cash equivalents	$	16,484		$	16,484	$	—		$	—
U.S. government securities	97,226			97,226		—			—
Mutual fund	34,833			34,833		—			—
Real estate investment trusts	1,505			1,505		—			—
Exchange-traded funds	62,244			62,244		—			—
Corporate stocks - common	141,372			141,372		—			—
Preferred securities	706			706		—			—
S&P 500 Index options	4,392			4,392		—			—
Interest rate swap agreements	(8,997		)	—		(8,997		)	—
Alternative investment fund	12,101			—		12,101			—
Unallocated insurance contract	90			—		—			90
Total	$	361,956		$	358,762	$	3,104		$	90

The following table sets forth changes in the fair value of plan assets, including all domestic and Canadian plans:



	Pension Benefits						Other Postretirement Benefits
($ thousands)	2017			2016			2017			2016
Fair value of plan assets at beginning of year	$	361,956		$	379,638		$	—		$	—
Actual return on plan assets	58,106			1,755			—			—
Employer contributions	450			1,458			180			178
Plan participants’ contributions	11			11			7			9
Benefits paid	(13,703		)	(19,853		)	(187		)	(187		)
Settlement gain	—			(1,304		)	—			—
Foreign exchange rate changes	261			251			—			—
Fair value of plan assets at end of year	$	407,081		$	361,956		$	—		$	—

Funded Status

The over-funded status as of February 3, 2018 and January 28, 2017 for pension benefits was $50.6 million and $21.7 million, respectively. The under-funded status as of February 3, 2018 and January 28, 2017 for other postretirement benefits was $1.6 million and $1.7 million, respectively.

Amounts recognized in the consolidated balance sheets consist of:



	Pension Benefits						Other Postretirement Benefits
($ thousands)	2017			2016			2017			2016
Prepaid pension costs (noncurrent assets)	$	62,575		$	32,489		$	—		$	—
Accrued benefit liabilities (current liability)	(3,988		)	(2,765		)	(238		)	(250		)
Accrued benefit liabilities (noncurrent liability)	(7,975		)	(8,043		)	(1,356		)	(1,416		)
Net amount recognized at end of year	$	50,612		$	21,681		$	(1,594	)	$	(1,666	)

The projected benefit obligation, the accumulated benefit obligation and the fair value of plan assets for pension plans with a projected benefit obligation in excess of plan assets and for pension plans with an accumulated benefit obligation in excess of plan assets, which includes only the Company’s SERP, were as follows:



	Projected Benefit Obligation Exceeds the Fair Value of Plan Assets				Accumulated Benefit Obligation Exceeds the Fair Value of Plan Assets


($ thousands)	2017		2016		2017		2016
End of Year
Projected benefit obligation	$	11,959	$	10,808	$	11,959	$	10,808
Accumulated benefit obligation	10,956		9,646		10,956		9,646
Fair value of plan assets	—		—		—		—

The accumulated postretirement benefit obligation exceeds assets for all of the Company’s other postretirement benefit plans.

The amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic benefit income at February 3, 2018 and January 28, 2017, and the expected amortization of the February 3, 2018 amounts as components of net periodic benefit income for fiscal year 2018, are as follows:



	Pension Benefits						Other Postretirement Benefits
($ thousands)	2017			2016			2017			2016
Components of accumulated other comprehensive loss, net of tax:
Net actuarial loss (gain)	$	22,424		$	35,104		$	(634	)	$	(635	)
Net prior service credit	(4,618		)	(4,385		)	—			—
	$	17,806		$	30,719		$	(634	)	$	(635	)



	Pension Benefits				Other Postretirement Benefits
($ thousands)		2018				2018
Expected amortization, net of tax:
Amortization of net actuarial loss (gain)		$	3,042			$	(92	)
Amortization of net prior service credit		(1,164		)		—
		$	1,878			$	(92	)

Net Periodic Benefit Income

Net periodic benefit income for 2017, 2016 and 2015 for all domestic and Canadian plans included the following components:



	Pension Benefits									Other Postretirement Benefits
($ thousands)	2017			2016			2015			2017			2016			2015
Service cost	$	9,705		$	8,288		$	12,639		$	—		$	—		$	—
Interest cost	14,948			15,275			14,321			68			76			56
Expected return on assets	(27,589		)	(28,949		)	(31,682		)	—			—			—
Amortization of:
Actuarial loss (gain)	4,315			272			604			(145		)	(163		)	(220		)
Prior service credit	(1,780		)	(1,840		)	(1,906		)	—			—			—
Settlement cost	—			259			—			—			—			—
Cost of contractual termination benefits	—			77			—			—			—			—
Curtailments	(2,165		)	—			(184		)	—			—			—
Total net periodic benefit income	$	(2,566	)	$	(6,618	)	$	(6,208	)	$	(77	)	$	(87	)	$	(164	)

Weighted-average assumptions used to determine net periodic benefit income:



	Pension Benefits						Other Postretirement Benefits
	2017		2016		2015		2017		2016		2015
Discount rate	4.40	%	4.70	%	3.90	%	4.40	%	4.70	%	3.90	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%	N/A		N/A		N/A
Expected return on plan assets	8.00	%	8.00	%	8.25	%	N/A		N/A		N/A

The net actuarial loss (gain) subject to amortization is amortized on a straight-line basis over the average future service of active plan participants as of the measurement date. The prior service credit is amortized on a straight-line basis over the average future service of active plan participants benefiting under the plan at the time of each plan amendment.

The expected long-term rate of return on plan assets is based on historical and projected rates of return for current and planned asset classes in the plan’s investment portfolio. Assumed projected rates of return for each asset class were selected after analyzing experience and future expectations of the returns. The overall expected rate of return for the portfolio was developed based on the target allocation for each asset class.

Expected Cash Flows

Information about expected cash flows for all pension and postretirement benefit plans follows:



	Pension Benefits
($ thousands)	Funded Plan		SERP		Total		Other Postretirement Benefits
Employer Contributions
2018 expected contributions to plan trusts	$	159	$	—	$	159	$	—
2018 expected contributions to plan participants	—		4,063		4,063		243
2018 refund of assets (e.g. surplus) to employer	186		—		186		—
Expected Benefit Payments
2018	$	12,766	$	4,063	$	16,829	$	243
2019	13,363		1,176		14,539		216
2020	14,131		3,079		17,210		192
2021	14,933		322		15,255		169
2022	15,638		656		16,294		148
2023 – 2027	86,432		1,817		88,249		481

Defined Contribution Plans

The Company’s domestic defined contribution 401(k) plan covers salaried and certain hourly employees. Company contributions represent a partial matching of employee contributions, generally up to a maximum of 3.5% of the employee’s salary and bonus. The Company’s expense for this plan was $3.9 million in 2017, $3.5 million in 2016, and $3.6 million in 2015.

The Company’s Canadian defined contribution plan covers certain salaried and hourly employees. The Company makes contributions for all eligible employees, ranging from 3% to 5% of the employee’s salary. In addition, eligible employees may voluntarily contribute to the plan. The Company’s expense for this plan was $0.3 million in 2017 and $0.2 million in 2016 and 2015, respectively.

Deferred Compensation Plan

The Company has a non-qualified deferred compensation plan (the “Deferred Compensation Plan”) for the benefit of certain management employees. The investment funds offered to the participants generally correspond to the funds offered in the Company’s 401(k) plan and the account balance fluctuates with the investment returns on those funds. The Deferred Compensation Plan permits the deferral of up to 50% of base salary and 100% of compensation received under the Company’s annual incentive plan. The deferrals are held in a separate trust, which has been established by the Company to administer the Deferred Compensation Plan. The assets of the trust are subject to the claims of the Company’s creditors in the event that the Company becomes insolvent. Consequently, the trust qualifies as a grantor trust for income tax purposes (i.e., a “Rabbi Trust”). The liabilities of the Deferred Compensation Plan of $6.4 million and $5.1 million as of February 3, 2018 and January 28, 2017, respectively, are presented in employee compensation and benefits in the accompanying consolidated balance sheets. The assets held by the trust of $6.4 million as of February 3, 2018 and $5.1 million as of January 28, 2017 are classified as trading securities within prepaid expenses and other current assets in the accompanying consolidated balance sheets, with changes in the deferred compensation charged to selling and administrative expenses in the accompanying consolidated statements of earnings.

Deferred Compensation Plan for Non-Employee Directors

Non-employee directors are eligible to participate in a deferred compensation plan, whereby deferred compensation amounts are valued as if invested in the Company’s common stock through the use of phantom stock units (“PSUs”). Under the plan, each participating director’s account is credited with the number of PSUs equal to the number of shares of the Company’s common stock that the participant could purchase or receive with the amount of the deferred compensation, based upon the fair value (as determined based on the average of the high and low prices) of the Company’s common stock on the last trading day of the fiscal quarter when the cash compensation was earned. Dividend equivalents are paid on PSUs at the same rate as dividends on the Company’s common stock and are re-invested in additional PSUs at the next fiscal quarter-end. The PSUs are payable in cash based on the number of PSUs credited to the participating director’s account, valued on the basis of the fair value at fiscal quarter-end on or following termination of the director’s service. The liabilities of the plan of $2.3 million as of February 3, 2018 and $1.9 million as of January 28, 2017 are based on 69,527 and 57,234 outstanding PSUs, respectively, and are presented in other liabilities in the accompanying consolidated balance sheets. Gains and losses resulting from changes in the fair value of the PSUs are charged to selling and administrative expenses in the accompanying consolidated statements of earnings.