Retirement Plans

12 Months Ended

Mar. 04, 2023

Retirement Plans

Retirement Plans

19. Retirement Plans

Defined Contribution Plans

The Company and its subsidiaries sponsor several retirement plans that are primarily 401(k) defined contribution plans covering nonunion associates and certain union associates. The Company does not contribute to all of the plans. In accordance with those plan provisions, the Company matches 100% of a participant’s pre-tax payroll contributions, up to a maximum of 3% of such participant’s pre-tax annual compensation. Thereafter, the Company will match 50% of the participant’s additional pre-tax payroll contributions, up to a maximum of 2% of such participant’s additional pre-tax annual compensation. Total expense recognized for the above plans was $44,504 in fiscal 2023, $41,528 in fiscal 2022 and $36,270 in fiscal 2021.

The Company sponsored a Supplemental Executive Retirement Plan (“SERP”) for its officers, based on an account-based plan design, that was subject to a five-year graduated vesting schedule. On February 25, 2019, the SERP was terminated and additional allocations were discontinued and all prior benefits under the program became fully vested. During fiscal 2020, participant benefits under this program were paid in full. No expense was recognized for the SERP in fiscal 2023, 2022 or 2021.

Defined Benefit Plans

The Company and its subsidiaries also sponsor a qualified defined benefit pension plan that requires benefits to be paid to eligible associates based upon years of service and, in some cases, eligible compensation. The Company’s funding policy for The Rite Aid Pension Plan (the “Defined Benefit Pension Plan”) is to contribute the minimum amount required by the Employee Retirement Income Security Act of 1974. However, the Company may, at its sole discretion, contribute additional funds to the plan. The Company made contributions of $0 in fiscal 2023, $1,700 in fiscal 2022 and $6,305 in fiscal 2021.

Net periodic pension expense and other changes recognized in other comprehensive income for the defined benefit pension plans included the following components:

	Defined Benefit Pension Plan
	2023		2022		2021
Service cost	$	336	$	425	$	486
Interest cost		5,036		4,861		4,753
Expected return on plan assets		(4,998)		(5,194)		(4,614)
Amortization of unrecognized net loss		—		344		3,749
Net periodic pension expense	$	374	$	436	$	4,374
Other changes recognized in other comprehensive loss:
Unrecognized net gain arising during period	$	(585)	$	(8,246)	$	(20,633)
Amortization of unrecognized net (loss) gain		—		(344)		(3,749)
Net amount recognized in other comprehensive loss		(585)		(8,590)		(24,382)
Net amount recognized in pension expense and other comprehensive loss	$	(211)	$	(8,154)	$	(20,008)

The table below sets forth reconciliation from the beginning of the year for both the benefit obligation and plan assets of the Company’s defined benefit plans, as well as the funded status and amounts recognized in the Company’s balance sheet as of March 4, 2023 and February 26, 2022:

	Defined Benefit
	Pension Plan
	2023		2022
Change in benefit obligations:
Benefit obligation at end of prior year	$	160,133	$	168,872
Service cost		336		425
Interest cost		5,036		4,861
Distributions		(8,328)		(8,582)
Actuarial gain		(26,014)		(5,443)
Benefit obligation at end of year	$	131,163	$	160,133
Change in plan assets:
Fair value of plan assets at beginning of year	$	149,527	$	148,412
Employer contributions		—		1,700
Actual return on plan assets		(20,430)		7,997
Distributions (including expenses paid by the plan)		(8,328)		(8,582)
Fair value of plan assets at end of year	$	120,769	$	149,527
Funded status	$	(10,394)	$	(10,606)
Net amount recognized	$	(10,394)	$	(10,606)
Amounts recognized in consolidated balance sheets consisted of:
Accrued pension liability		(10,394)		(10,606)
Net amount recognized	$	(10,394)	$	(10,606)
Amounts recognized in accumulated other comprehensive loss consist of:
Net actuarial loss	$	11,202	$	(11,787)
Amount recognized	$	11,202	$	(11,787)

The decrease in the benefit obligation during the year ended March 4, 2023, was driven by the increase in discount rate from 3.25% as of February 26, 2022 to 5.00% as of March 4, 2023.

The decrease in the benefit obligation during the year ended February 26, 2022, was driven by the increase in discount rate from 3.00% as of February 27, 2021 to 3.25% as of February 26, 2022. The pension plan also benefitted from favorable return on assets and favorable experience from updated census data.

The estimated net actuarial loss and prior service cost amounts that will be amortized from accumulated other comprehensive loss into net periodic pension expense in fiscal 2024 are $0 and $0, respectively.

The accumulated benefit obligation for the defined benefit pension plan was $131,163 and $160,133 as of March 4, 2023 and February 26, 2022, respectively.

The accumulated benefit obligation and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets as of March 4, 2023 and February 26, 2022 were as follows:

	Defined Benefit
	Pension Plan
	2023			2022
Accumulated Benefit Obligations	$	131,163	$	160,133
Fair Value of Plan Assets	$	120,769	$	149,527

The projected benefit obligation and fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets as of March 4, 2023 and February 26, 2022 were as follows:

	Defined Benefit
	Pension Plan
	2023			2022
Projected Benefit Obligations	$	131,163	$	160,133
Fair Value of Plan Assets	$	120,769	$	149,527

The significant actuarial assumptions used for all defined benefit plans to determine the benefit obligation as of March 4, 2023, February 26, 2022 and February 27, 2021 were as follows:

	Defined Benefit
	Pension Plan
	2023		2022		2021
Discount rate	5.00	%	3.25	%	3.00	%
Rate of increase in future compensation levels	N/A		N/A		N/A
Expected long-term rate of return on plan assets	6.50	%	5.00	%	5.50	%

Weighted average assumptions used to determine net cost for the fiscal years ended March 4, 2023, February 26, 2022 and February 27, 2021 were:

	Defined Benefit
	Pension Plan
	2023		2022		2021
Discount rate	3.25	%	3.00	%	2.75	%
Rate of increase in future compensation levels	N/A		N/A		N/A
Expected long-term rate of return on plan assets	5.00	%	5.50	%	6.00	%

To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 5.00% long-term rate of return on plan assets assumption for fiscal 2023, 5.50% for 2022 and 6.00% for 2021.

The Company’s pension plan asset allocations as of March 4, 2023 and February 26, 2022 by asset category were as follows:

	March 4,		February 26,
	2023		2022
Equity securities	30	%	30	%
Fixed income securities	59	%	57	%
Other	11	%	13	%
Total	100	%	100	%

The investment objectives of the Defined Benefit Pension Plan, the only defined benefit plan with assets, are to:

● Achieve a rate of return on investments that exceeds inflation over a full market cycle and is consistent with actuarial assumptions;

● Balance the correlation between assets and liabilities by diversifying the portfolio among various asset classes to address return risk and interest rate risk;

● Balance the allocation of assets between the investment managers to minimize concentration risk;

● Maintain liquidity in the portfolio sufficient to meet plan obligations as they come due; and

● Control administrative and management costs.

The asset allocation established for the pension investment program reflects the risk tolerance of the Company, as determined by:

● the current and anticipated financial strength of the Company;

● the funded status of the plan; and

● plan liabilities.

Investments in both the equity and fixed income markets will be maintained, recognizing that historical results indicate that equities (primarily common stocks) have higher expected returns than fixed income investments. It is also recognized that the correlation between assets and liabilities must be balanced to address higher volatility of equity investments (return risk) and interest rate risk.

The following targets are to be applied to the allocation of plan assets.

	Target
Category	Allocation
Equity securities	30	%
Fixed income securities	62	%
Other	8	%
Total	100	%

The Company expects to contribute $0 to the Defined Benefit Pension Plan during fiscal 2024.

Short-Term Investments

Short-term investments, which is a short-term investment fund, and is considered cash and cash equivalents, is classified within Level 2 of the valuation hierarchy due to the lack of an active market for trading.

Common and Collective Trusts

Common collective trust funds are stated at fair value as determined by the issuer of the common collective trust funds based on the net asset value (“NAV”) of the underlying investments in accordance with ASC 820. There are generally no restrictions on redemptions from these funds and no unfunded commitments to invest. In accordance with ASC subtopic 820-10, certain investments that were measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. The underlying investments mainly consist of equity and fixed income securities funds that are valued based on the daily closing price as reported by the fund.

The proceeding methods described may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company 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 as of March 4, 2023.

The following table sets forth by level within the fair value hierarchy a summary of the plan’s investments measured at fair value on a recurring basis as of March 4, 2023 and February 26, 2022:

	Fair Value Measurements as of March 4, 2023
	Quoted Prices in
	Active Markets		Significant		Significant
	for Identical		Observable		Unobservable
	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Equity Securities
International equity	$	—	$	—	$	—	$	13,901
Large Cap		—		—		—		18,556
Small-Mid Cap		—		—		—		3,309
Fixed Income
Aon High Yield Plus Bond		—		—		—		72
Aon Multi-Asset Credit		—		—		—		4,775
Long-Term Credit Bond Index		—		—		—		41,360
Long-Term U.S. Government Bonds		—		—		—		1,588
20+ Year Treasury STRIPS		—		—		—		12,821
Intermediate Fixed Income		—		—		—		9,781
AGT High Yield Bond		—		—		—		—
Other types of investments
Aon Global Real Estate		—		—		—		11
Aon Core Real Estate Fund		—		—		—		13,479
Short-Term Investments		—		1,111		—		1,111
Total	$	—	$	1,111	$	—	$	120,764

	Fair Value Measurements as of February 26, 2022
	Quoted Prices in
	Active Markets		Significant		Significant
	for Identical		Observable		Unobservable
	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		Total
Equity Securities
International equity	$	—	$	—	$	—	$	17,783
Large Cap		—		—		—		23,027
Small-Mid Cap		—		—		—		4,213
Fixed Income
Aon High Yield Plus Bond		—		—		—		75
Aon Multi-Asset Credit		—		—		—		7,386
Long-Term Credit Bond Index		—		—		—		47,976
Long-Term U.S. Government Bonds		—		—		—		19,763
20+ Year Treasury STRIPS		—		—		—		483
Intermediate Fixed Income		—		—		—		8,554
AGT High Yield Bond		—		—		—		—
Other types of investments
Aon Global Real Estate		—		—		—		13
Aon Core Real Estate Fund		—		—		—		18,720
Short-Term Investments		—		1,532		—		1,532
Total	$	—	$	1,532	$	—	$	149,525

Following are the future benefit payments expected to be paid for the Defined Benefit Pension Plan during the years indicated:

	Defined Benefit
Fiscal Year	Pension Plan
2024	$	9,497
2025		9,379
2026		9,373
2027		9,410
2028		9,252
2029 - 2033		44,769
Total	$	91,680