Note I. Pension Plans and Other Retirement Benefits

Pension: TJX has a funded defined benefit retirement plan that covers a majority of its full-time U.S. employees hired prior to February 1, 2006. No employee contributions are required, and benefits are based principally on compensation earned in each year of service. TJX’s funded defined benefit retirement plan assets are invested in domestic and international equity and fixed income securities, both directly and through investment funds. The plan does not invest in TJX securities. TJX also has an unfunded supplemental retirement plan that covers certain key employees and provides additional retirement benefits based on average compensation for certain of those employees or, alternatively based on benefits that would be provided under the funded retirement plan absent Internal Revenue Code limitations.

Presented below is financial information relating to TJX’s funded defined benefit retirement plan (funded plan) and its unfunded supplemental pension plan (unfunded plan) for the fiscal years indicated:


	Funded Plan Fiscal Year Ended						Unfunded Plan Fiscal Year Ended
In thousands	February 2, 2013			January 28, 2012			February 2, 2013			January 28, 2012
	(53 weeks)						(53 weeks)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	850,687		$	666,356		$	53,351		$	49,526
Service cost		41,813			33,858			1,448			1,188
Interest cost		42,029			38,567			2,321			2,410
Correction of prior years pension accruals		33,788			—			—			—
Actuarial losses (gains)		70,438			128,154			6,666			3,582
Benefits paid		(17,989	)		(14,151	)		(2,753	)		(3,355	)
Expenses paid		(2,054	)		(2,097	)		—			—
Projected benefit obligation at end of year	$	1,018,712		$	850,687		$	61,033		$	53,351
Accumulated benefit obligation at end of year	$	939,905		$	785,402		$	49,879		$	46,775


	Funded Plan Fiscal Year Ended						Unfunded Plan Fiscal Year Ended
In thousands	February 2, 2013			January 28, 2012			February 2, 2013			January 28, 2012
	(53 weeks)						(53 weeks)
Change in plan assets:
Fair value of plan assets at beginning of year	$	750,797		$	663,591		$	—		$	—
Actual return on plan assets		70,329			28,454			—			—
Employer contribution		75,000			75,000			2,753			3,355
Benefits paid		(17,989	)		(14,151	)		(2,753	)		(3,355	)
Expenses paid		(2,054	)		(2,097	)		—			—
Fair value of plan assets at end of year	$	876,083		$	750,797		$	—		$	—
Reconciliation of funded status:
Projected benefit obligation at end of year	$	1,018,712		$	850,687		$	61,033		$	53,351
Fair value of plan assets at end of year		876,083			750,797			—			—
Funded status – excess obligation	$	142,629		$	99,890		$	61,033		$	53,351
Net liability recognized on consolidated balance sheets	$	142,629		$	99,890		$	61,033		$	53,351
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss):
Prior service cost	$	—		$	—		$	5		$	8
Accumulated actuarial losses		323,258			286,939			17,601			12,400
Amounts included in accumulated other comprehensive income (loss)	$	323,258		$	286,939		$	17,606		$	12,408

The consolidated balance sheets reflect the funded status of the plans with any unrecognized prior service cost and actuarial gains and losses recorded in accumulated other comprehensive income (loss). The combined net accrued liability of $203.7 million at February 2, 2013 is reflected on the balance sheet as of that date as a current liability of $2.4 million and a long-term liability of $201.3 million.

The combined net accrued liability of $153.2 million at January 28, 2012 is reflected on the balance sheet as of that date as a current liability of $2.4 million and a long-term liability of $150.8 million.

The estimated prior service cost that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in fiscal 2014 for both the funded and unfunded plan is immaterial. The estimated net actuarial loss that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in fiscal 2014 is $27.7 million for the funded plan and $2.2 million for the unfunded plan.

TJX determines the assumed discount rate using the RATE:Link model. Weighted average assumptions for measurement purposes for determining the obligation at the year end measurement date:


	Funded Plan Fiscal Year Ended						Unfunded Plan Fiscal Year Ended
	February 2, 2013			January 28, 2012			February 2, 2013			January 28, 2012
Discount rate		4.40	%		4.80	%		4.00	%		4.40	%
Rate of compensation increase		4.00	%		4.00	%		6.00	%		6.00	%

TJX made aggregate cash contributions of $77.8 million in fiscal 2013, $78.4 million in fiscal 2012 and $103.4 million in fiscal 2011 to the funded plan and to fund current benefit and expense payments under the unfunded plan. TJX’s policy with respect to the funded plan is to fund, at a minimum, the amount required to maintain a funded status of 80% of the applicable pension liability (the Funding Target pursuant to the Internal Revenue Code section 430) or such other amount as is sufficient to avoid restrictions with respect to the funding of nonqualified plans under the Internal Revenue Code. We do not anticipate any required funding in fiscal 2014 for the funded plan. We anticipate making contributions of $3.5 million to provide current benefits coming due under the unfunded plan in fiscal 2014.

The following are the components of net periodic benefit cost and other amounts recognized in other comprehensive income related to our pension plans:


	Funded Plan Fiscal Year Ended									Unfunded Plan Fiscal Year Ended
Dollars in thousands	February 2, 2013			January 28, 2012			January 29, 2011			February 2, 2013			January 28, 2012			January 29, 2011
	(53 weeks)									(53 weeks)
Net periodic pension cost:
Service cost	$	41,813		$	33,858		$	32,142		$	1,448		$	1,188		$	1,202
Interest cost		42,029			38,567			34,429			2,321			2,410			2,682
Expected return on plan assets		(54,759	)		(49,059	)		(40,043	)		—			—			—
Amortization of prior service cost		—			—			—			3			4			81
Amortization of net actuarial loss		25,373			10,854			11,172			1,465			666			941
Expense related to current period		54,456			34,220			37,700			5,237			4,268			4,906
Correction of prior years pension accruals		26,964			—			—			—			—			—
Total expense	$	81,420		$	34,220		$	37,700		$	5,237		$	4,268		$	4,906
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net (gain) loss	$	61,692		$	148,759		$	4,454		$	6,666		$	3,582		$	(2,727	)
Amortization of net (loss)		(25,373	)		(10,854	)		(11,172	)		(1,465	)		(666	)		(941	)
Amortization of prior service cost		—			—			—			(3	)		(4	)		(81	)
Total recognized in other comprehensive income	$	36,319		$	137,905		$	(6,718	)	$	5,198		$	2,912		$	(3,749	)
Total recognized in net periodic benefit cost and other comprehensive income	$	117,739		$	172,125		$	30,982		$	10,435		$	7,180		$	1,157
Weighted average assumptions for expense purposes:
Discount rate		4.80%			5.75%			6.00%			4.40%			5.25%			5.75%
Expected rate of return on plan assets		7.40%			7.50%			8.00%			N/A			N/A			N/A
Rate of compensation increase		4.00%			4.00%			4.00%			6.00%			6.00%			6.00%

During fiscal 2013, TJX recorded an adjustment to its pension accrual to correct an understatement related to a computational error that commenced in fiscal 2008. The cumulative impact through fiscal 2012 of correcting for the error resulted in incremental pension expense of $27.0 million and an increase in the projected benefit obligation of $33.8 million. Management evaluated the impact of correcting the error in the current period and determined that there was no material impact on the current year or the prior year financial statements as reported.

TJX develops its long-term rate of return assumption by evaluating input from professional advisors taking into account the asset allocation of the portfolio and long-term asset class return expectations, as well as long-term inflation assumptions.

The unrecognized gains and losses in excess of 10% of the projected benefit obligation are amortized over the average remaining service life of participants. In addition, for the unfunded plan, unrecognized actuarial gains and losses that exceed 30% of the projected benefit obligation are fully recognized in net periodic pension cost.

The following is a schedule of the benefits expected to be paid in each of the next five fiscal years and in the aggregate for the five fiscal years thereafter:


In thousands	Funded Plan Expected Benefit Payments		Unfunded Plan Expected Benefit Payments
Fiscal Year
2014	$	23,766	$	3,517
2015		26,424		3,433
2016		29,492		2,462
2017		32,938		4,797
2018		36,714		4,859
2019 through 2023		244,079		22,738

The following table presents the fair value hierarchy (see Note F) for pension assets measured at fair value on a recurring basis as of February 2, 2013:


	Funded Plan
In thousands	Level 1		Level 2		Level 3		Total
Asset category:
Short-term investments	$	144,008	$	—	$	—	$	144,008
Equity Securities:
Domestic equity		65,105		—		—		65,105
International equity		61,944		—		—		61,944
Fixed Income Securities:
Corporate and government bond funds		—		203,931		—		203,931
Common/Collective Trusts		—		376,873		13,158		390,031
Limited Partnerships		—		—		11,064		11,064
Fair value of plan assets	$	271,057	$	580,804	$	24,222	$	876,083

The following table presents the fair value hierarchy for pension assets measured at fair value on a recurring basis as of January 28, 2012:


	Funded Plan
In thousands	Level 1		Level 2		Level 3		Total
Asset category:
Short-term investments	$	82,220	$	—	$	—	$	82,220
Equity Securities:
Domestic equity		98,386		—		—		98,386
International equity		44,679		—		—		44,679
Fixed Income Securities:
Corporate and government bond funds		—		31,349		—		31,349
Common/Collective Trusts		—		467,346		14,775		482,121
Limited Partnerships		—		—		12,042		12,042
Fair value of plan assets	$	225,285	$	498,695	$	26,817	$	750,797

The following table presents a reconciliation of Level 3 plan assets measured at fair value for the years ended February 2, 2013 and January 28, 2012:


In thousands	Common/Collective Trusts			Limited Partnerships
Balance as of January 29, 2011	$	16,100		$	10,609
Earned income, net of management expenses		517			230
Unrealized gain on investment		1,427			2,291
Purchases, sales, issuances and settlements, net		(3,269	)		(1,088	)
Balance as of January 28, 2012	$	14,775		$	12,042
Earned income, net of management expenses		1,258			348
Unrealized gain on investment		39			595
Purchases, sales, issuances and settlements, net		(2,914	)		(1,921	)
Balance as of February 2, 2013	$	13,158		$	11,064

Pension plan assets are reported at fair value. Investments in equity securities traded on a national securities exchange are valued at the composite close price, as reported in the Wall Street Journal, as of the financial statement date. This information is provided by the independent pricing services IDC, Bloomberg and Reuters.

Certain corporate and government bonds are valued at the closing price reported in the active market in which the bond is traded. Other bonds are valued based on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar bonds, the bond 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. All bonds are priced by IDC, JP Morgan and Reuters.

The investments in the limited partnerships are stated at the fair value of the Plan’s partnership interest based on information supplied by the partnerships as compared to financial statements of the limited partnership or other fair value information as determined by management. Any cash equivalents or short-term investments are stated at cost which approximates fair value. The fair value of the investments in the common/collective trusts is determined based on net asset value as reported by their fund managers.

The following is a summary of TJX’s target allocation for plan assets along with the actual allocation of plan assets as of the valuation date for the fiscal years presented:

Actual Allocation for

Fiscal Year Ended

Target Allocation

February 2,
2013

January 28,
2012

Equity securities

50%

46%

44%

Fixed income

50%

44%

46%

All other – primarily cash

—

10%

10%

TJX employs a total return investment approach whereby a mix of equities and fixed income investments is used to seek to maximize the long-term return on plan assets with a prudent level of risk. Risks are sought to be mitigated through asset diversification and the use of multiple investment managers. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements and periodic asset/liability studies.

TJX also sponsors an employee savings plan under Section 401(k) of the Internal Revenue Code for all eligible U.S. employees and a similar type plan for eligible employees in Puerto Rico. Assets under the plans totaled $903.7 million as of December 31, 2012 and $787.1 million as of December 31, 2011 and are invested in a variety of funds. Employees may contribute up to 50% of eligible pay, subject to limitation. TJX matches employee contributions, up to 5% of eligible pay, including a basic match at rates between 25% and 75% (based upon date of hire and other eligibility criteria) plus a discretionary match, generally up to 25%, based on TJX’s performance. As of February 2, 2013 eligible employees are automatically enrolled in the U.S. plan at a 2% deferral rate, unless the employee elects otherwise. TJX contributed $16.1 million in fiscal 2013, $11.8 million in fiscal 2012 and $13.9 million in fiscal 2011 to these employee savings plans. Employees cannot invest their contributions in the TJX stock fund option in the plans, and may elect to invest no more than 50% of TJX’s contribution in the TJX stock fund. The TJX stock fund represents 7.2% of plan investments at December 31, 2012, 6.6% at December 31, 2011 and 4.7% at December 31, 2010.

TJX also has a nonqualified savings plan for certain U.S. employees. TJX matches employee deferrals at various rates which amounted to $4.0 million in fiscal 2013, $2.6 million in fiscal 2012 and $2.4 million in fiscal 2011. Although the plan is unfunded, in order to help meet its future obligations TJX transfers an amount equal to employee deferrals and the related company match to a separate “rabbi” trust. The trust assets, which are invested in a variety of mutual funds, are included in other assets on the balance sheets.

In addition to the plans described above, TJX also maintains retirement/deferred savings plans for eligible associates at its foreign subsidiaries. We contributed $7.1 million for these plans in fiscal 2013, $5.8 million in fiscal 2012 and $5.2 million in fiscal 2011. TJX also maintains a 401(k) plan for eligible associates of Sierra Trading Post, assets under this plan totaled $1.9 million as of February 2, 2013.

Multiemployer Pension plans: TJX contributes to the National Retirement Fund (EIN #13-6130178), a multiemployer defined benefit pension plan under the terms of collective-bargaining agreements that cover union-represented employees. TJX contributed $10.9 million in fiscal 2013, $10.8 million in fiscal 2012 and $9.9 million in fiscal 2011 to the fund. TJX was listed in the plan’s forms 5500 as providing more than 5% of the total contributions for the plan year ending December 31, 2011. The Pension Protection Act Zone Status of the plan is Critical and a rehabilitation plan has been implemented.

Postretirement Medical: TJX has an unfunded postretirement medical plan that provides limited postretirement medical and life insurance benefits to retirees who participate in its retirement plan and who retired at age 55 or older with ten or more years of service. During the fourth quarter of fiscal 2006, TJX eliminated this benefit for all active associates and modified the benefit to cover only retirees enrolled in the plan at that time.

TJX paid $196,000 of benefits in fiscal 2013 and will pay similar amounts over the next several years. The postretirement medical liability as of February 2, 2013 is estimated at $1.3 million, all of which is included in non-current liabilities on the balance sheet.

The amendment to plan benefits in fiscal 2006 resulted in a negative plan amendment of $46.8 million which is being amortized into income over the average remaining life of the active plan participants. The unamortized balance of $16.3 million as of February 2, 2013 is included in accumulated other comprehensive income (loss) of which approximately $3.5 million will be amortized into income in fiscal 2014. During fiscal 2013, there was a pre-tax net benefit of $3.5 million reflected in the consolidated statements of income as it relates to this postretirement medical plan.