Note J. 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, or permitted, 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 final average compensation for certain of those employees (the primary benefit) or, alternatively, based on benefits that would be provided under the funded retirement plan absent Internal Revenue Code limitations (the alternative benefit).

Presented below is financial information relating to TJX’s funded defined benefit pension plan (qualified pension plan or 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	January 31, 2015			February 1, 2014			January 31, 2015			February 1, 2014
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	996,968		$	1,018,712		$	59,566		$	61,033
Service cost		40,481			44,623			1,398			1,716
Interest cost		49,522			44,654			3,001			2,447
Actuarial losses (gains)		251,144			(84,970	)		19,552			(2,925	)
Benefits paid		(28,348	)		(23,431	)		(1,279	)		(2,705	)
Expenses paid		(2,945	)		(2,620	)		—			—
Plan amendment		3,067			—			—			—
Projected benefit obligation at end of year	$	1,309,889		$	996,968		$	82,238		$	59,566
Accumulated benefit obligation at end of year	$	1,203,464		$	921,723		$	68,591		$	49,957


	Funded Plan Fiscal Year Ended						Unfunded Plan Fiscal Year Ended
In thousands	January 31, 2015			February 1, 2014			January 31, 2015			February 1, 2014
Change in plan assets:
Fair value of plan assets at beginning of year	$	944,801		$	876,083		$	—		$	—
Actual return on plan assets		107,240			64,769			—			—
Employer contribution		150,000			30,000			1,279			2,705
Benefits paid		(28,348	)		(23,431	)		(1,279	)		(2,705	)
Expenses paid		(2,945	)		(2,620	)		—			—
Fair value of plan assets at end of year	$	1,170,748		$	944,801		$	—		$	—
Reconciliation of funded status:
Projected benefit obligation at end of year	$	1,309,889		$	996,968		$	82,238		$	59,566
Fair value of plan assets at end of year		1,170,748			944,801			—			—
Funded status – excess obligation	$	139,141		$	52,167		$	82,238		$	59,566
Net liability recognized on consolidated balance sheets	$	139,141		$	52,167		$	82,238		$	59,566
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss):
Plan amendment	$	3,067		$	—		$	—		$	2
Accumulated actuarial losses		401,165			205,923			29,198			11,792
Amounts included in accumulated other comprehensive income (loss)	$	404,232		$	205,923		$	29,198		$	11,794

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 $221.4 million at January 31, 2015 is reflected on the balance sheet as of that date as a current liability of $3.5 million and a long-term liability of $217.9 million.

The combined net accrued liability of $111.7 million at February 1, 2014 is reflected on the balance sheet as of that date as a current liability of $3.4 million and a long-term liability of $108.3 million.

The estimated prior service cost that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in fiscal 2016 for the funded plan is $377,000. The estimated net actuarial loss that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in fiscal 2016 is $33.8 million for the funded plan and $5.2 million for the unfunded plan.

The Society of Actuaries recently issued new mortality tables projecting longer life expectancies that will result in higher postretirement benefit obligations for U.S. companies. We updated our mortality assumptions at January 31, 2015. The new mortality assumptions increased our funded plan’s benefit obligation by $59 million and the unfunded plan’s benefit obligation by $4 million at January 31, 2015. Both of these amounts are included in actuarial gains/losses presented in the change in the projected benefit obligation. Additional actuarial losses for fiscal 2015 are primarily due to the reduction in discount rate.

TJX determined the assumed discount rate using the BOND: Link model in fiscal 2015 and fiscal 2014. TJX uses the BOND: Link model as this model allows for the selection of specific bonds resulting in better matches in timing of the plans’ expected cash flows. Presented below are 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
	January 31, 2015			February 1, 2014			January 31, 2015			February 1, 2014
Discount rate		4.00	%		5.00	%		3.70	%		4.80	%
Rate of compensation increase		4.00	%		4.00	%		6.00	%		6.00	%

TJX made aggregate cash contributions of $151.3 million in fiscal 2015, $32.7 million in fiscal 2014 and $77.8 million in fiscal 2013 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 2016 for the funded plan. We anticipate making contributions of $3.3 million to provide current benefits coming due under the unfunded plan in fiscal 2016.

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	January 31, 2015			February 1, 2014			February 2, 2013			January 31, 2015			February 1, 2014			February 2, 2013
	(53 weeks)									(53 weeks)
Net periodic pension cost:
Service cost	$	40,481		$	44,623		$	41,813		$	1,398		$	1,716		$	1,448
Interest cost		49,522			44,654			42,029			3,001			2,447			2,321
Expected return on plan assets		(65,187	)		(60,474	)		(54,759	)		—			—			—
Amortization of prior service cost		—			—			—			2			3			3
Amortization of net actuarial loss		13,848			28,070			25,373			2,146			2,884			1,465
Expense related to current period		38,664			56,873			54,456			6,547			7,050			5,237
Correction of prior years pension accruals		—			—			26,964			—			—			—
Total expense	$	38,664		$	56,873		$	81,420		$	6,547		$	7,050		$	5,237
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net (gain) loss	$	209,091		$	(89,265	)	$	61,692		$	19,552		$	(2,925	)	$	6,666
Amortization of net (loss)		(13,848	)		(28,070	)		(25,373	)		(2,146	)		(2,884	)		(1,465	)
Plan amendment		3,067			—			—			(2	)		(3	)		(3	)
Total recognized in other comprehensive income	$	198,310		$	(117,335	)	$	36,319		$	17,404		$	(5,812	)	$	5,198
Total recognized in net periodic benefit cost and other comprehensive income	$	236,974		$	(60,462	)	$	117,739		$	23,951		$	1,238		$	10,435
Weighted average assumptions for expense purposes:
Discount rate		5.00%			4.40%			4.80%			4.80%			4.00%			4.40%
Expected rate of return on plan assets		7.00%			7.00%			7.40%			N/A			N/A			N/A
Rate of compensation increase		4.00%			4.00%			4.00%			6.00%			6.00%			6.00%

The rate of compensation increase presented for the unfunded plan (for measurement purposes and expense purposes) is the rate assumed for participants eligible for the primary benefit. The assumed rate of compensation increase for participants eligible for the alternative benefit under the unfunded plan is the same rate as assumed for the funded plan.

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 fiscal 2013 and determined that there was no material impact on that 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.

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
2016	$	30,120	$	3,252
2017		33,387		6,543
2018		37,166		6,658
2019		41,199		6,978
2020		45,375		7,396
2021 through 2025		294,930		31,804

The following table presents the fair value hierarchy (See Note G) for pension assets measured at fair value on a recurring basis as of January 31, 2015:


	Funded Plan
In thousands	Level 1		Level 2		Level 3		Total
Asset category:
Short-term investments	$	136,276	$	—	$	—	$	136,276
Equity Securities:
Domestic equity		77,373		—		—		77,373
International equity		157,392		—		—		157,392
Fixed Income Securities:
Corporate and government bond funds		—		300,761		—		300,761
Common/Collective Trusts		—		485,619		8,283		493,902
Limited Partnerships		—		—		5,044		5,044
Fair value of plan assets	$	371,041	$	786,380	$	13,327	$	1,170,748

The following table presents the fair value hierarchy for pension assets measured at fair value on a recurring basis as of February 1, 2014:


	Funded Plan
In thousands	Level 1		Level 2		Level 3		Total
Asset category:
Short-term investments	$	57,217	$	—	$	—	$	57,217
Equity Securities:
Domestic equity		74,415		—		—		74,415
International equity		150,149		—		—		150,149
Fixed Income Securities:
Corporate and government bond funds		—		214,954		—		214,954
Common/Collective Trusts		—		429,932		10,421		440,353
Limited Partnerships		—		—		7,713		7,713

Fair value of plan assets	$	281,781	$	644,886	$	18,134	$	944,801

The following table presents a reconciliation of Level 3 plan assets measured at fair value for the years ended January 31, 2015 and February 1, 2014:


In thousands	Common/Collective Trusts			Limited Partnerships
Balance as of February 2, 2013	$	13,158		$	11,064
Earned income, net of management expenses		671			312
Unrealized gain on investment		676			507
Purchases, sales, issuances and settlements, net		(4,084	)		(4,170	)
Balance as of February 1, 2014	$	10,421		$	7,713
Earned income, net of management expenses		557			786
Unrealized gain on investment		51			76
Purchases, sales, issuances and settlements, net		(2,746	)		(3,531	)
Balance as of January 31, 2015	$	8,283		$	5,044

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 sources.

Short-term investments are primarily cash related to funding of the plan which had yet to be invested as of balance sheet dates.

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 independent pricing sources.

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

January 31,
2015

February 1,
2014

Equity securities

50%

44%

51%

Fixed income

50%

45%

44%

All other – primarily cash

—

11%

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 of plan for eligible employees in Puerto Rico. Assets under the plans totaled $1,275.4 million as of December 31, 2014 and $1,137.3 million as of December 31, 2013 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. Eligible employees are automatically enrolled in the U.S. plan at a 2% deferral rate, unless the employee elects otherwise. TJX contributed $31.2 million in fiscal 2015, $29.7 million in fiscal 2014 and $16.1 million in fiscal 2013 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 7.4% at December 31, 2014, 8.3% of plan investments at December 31, 2013, and 7.2% of plan investments at December 31, 2012. TJX also maintained a 401(k) plan for eligible associates of Sierra Trading Post through December 31, 2013. All assets under this plan (which totaled $13.4 million) were transferred to the TJX 401(k) plan as of January 1, 2014.

TJX also has a nonqualified savings plan (the Executive Savings Plan) for certain U.S. employees. TJX matches employee deferrals at various rates which amounted to $3.5 million in fiscal 2015, $2.4 million in fiscal 2014 and $4.0 million in fiscal 2013. Although the plan is unfunded, in order to help meet its future obligations TJX transfers an amount generally 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 $9.3 million for these plans in fiscal 2015, $8.1 million in fiscal 2014 and $7.1 million in fiscal 2013.

Multiemployer Pension Plans: TJX contributes to certain multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that cover union-represented employees. TJX contributed $11.5 million in fiscal 2015, $11.5 million in fiscal 2014 and $10.9 million in fiscal 2013 to the National Retirement Fund (EIN #13-6130178) and was listed in the plan’s Form 5500 as providing more than 5% of the total contributions for the plan year ending December 31, 2013. Based on information TJX received from the plan, the Pension Protection Act Zone Status of the National Retirement Fund is Critical and a rehabilitation plan has been implemented.

The risks of participating in multiemployer pension plans are different from the risks of single-employer pension plans in certain respects, including the following: (a) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; (b) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; (c) if we cease to have an obligation to contribute to a multiemployer plan in which we had been a contributing employer, we may be required to pay to the plan an amount based on our allocable share of the underfunded status of the plan, referred to as a withdrawal liability.

Postretirement Medical: TJX has a postretirement medical plan that provides limited postretirement medical benefits to retirees who are eligible for the defined benefit plan and who retired at age 55 or older with ten or more years of service. During fiscal 2006, TJX eliminated this benefit for all active associates and modified the benefit that was offered to retirees enrolled in the plan at that time.

TJX paid $174,000 of benefits in fiscal 2015 and will pay similar amounts over the next several years. The postretirement medical liability as of January 31, 2015 is estimated at $1.1 million, which is reflected on the balance sheet as a current liability of $167,000 and a long-term liability of $932,000.

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 $9.4 million as of January 31, 2015 is included in accumulated other comprehensive income (loss) of which approximately $3.5 million will be amortized into income in fiscal 2016. During fiscal 2015, 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.