Audit Report-Plan Help
jams_r1
Annualreport-Macys-Part2.pdf
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of February 1, 2020 and February 2, 2019, there were no revolving credit loans outstanding under the credit agreements, and there were no borrowings under the agreements during 2019 and 2018. In addition, there were no standby letters of credit outstanding at February 1, 2020 and February 2, 2019. Revolving loans under the credit agreement bear interest based on various published rates.
The Company's credit agreement, which is an obligation of a 100%-owned subsidiary of Macy’s, Inc. (“Parent”), is not secured. However, Parent has fully and unconditionally guaranteed this obligation. The credit agreement requires the Company to maintain a specified interest coverage ratio for the latest four quarters of no less than 3.25 and a specified leverage ratio as of and for the latest four quarters of no more than 3.75. The Company’s interest coverage ratio for 2019 was 12.68 and its leverage ratio at February 1, 2020 was 1.78, in each case as calculated in accordance with the credit agreement. The interest coverage ratio is defined as EBITDA divided by net interest expense and the leverage ratio is defined as debt divided by EBITDA. For purposes of these calculations EBITDA is calculated as net income plus interest expense, taxes, depreciation, amortization, non-cash impairment of goodwill, intangibles and real estate, settlement charges, non-recurring cash charges not to exceed in the aggregate $200 million and extraordinary losses less interest income and non-recurring or extraordinary gains. Net interest is adjusted to exclude the premium on early retirement of debt.
A breach of a restrictive covenant in the Company’s credit agreement or the inability of the Company to maintain the financial ratios described above could result in an event of default under the credit agreement. In addition, an event of default would occur under the credit agreement if any indebtedness of the Company in excess of an aggregate principal amount of $150 million becomes due prior to its stated maturity or the holders of such indebtedness become able to cause it to become due prior to its stated maturity. Upon the occurrence of an event of default, the lenders could, subject to the terms and conditions of the credit agreement, elect to declare the outstanding principal, together with accrued interest, to be immediately due and payable. Moreover, most of the Company’s senior notes and debentures contain cross-default provisions based on the non-payment at maturity, or other default after an applicable grace period, of any other debt, the unpaid principal amount of which is not less than $100 million that could be triggered by an event of default under the credit agreement. In such an event, the Company’s senior notes and debentures that contain cross-default provisions would also be subject to acceleration.
Commercial Paper The Company is a party to a $1,500 million unsecured commercial paper program. The Company may issue and sell commercial paper in an aggregate amount
outstanding at any particular time not to exceed its then-current combined borrowing availability under the bank credit agreement described above. The issuance of commercial paper will have the effect, while such commercial paper is outstanding, of reducing the Company’s borrowing capacity under the bank credit agreement by an amount equal to the principal amount of such commercial paper. There were no borrowings under the program during 2019 and 2018. As of February 1, 2020 and February 2, 2019, there were no remaining borrowings outstanding under the commercial paper program.
This program, which is an obligation of a 100%-owned subsidiary of Macy’s, Inc., is not secured. However, Parent has fully and unconditionally guaranteed the obligations.
Senior Notes and Debentures The senior notes and the senior debentures are unsecured obligations of a 100%-owned subsidiary of Macy’s, Inc. and Parent has fully and unconditionally guaranteed
these obligations (see Note 16, Condensed Consolidating Financial Information).
Other Financing Arrangements At February 1, 2020 and February 2, 2019, the Company had dedicated $37 million of cash, included in prepaid expenses and other current assets, which is used to
collateralize the Company’s issuances of standby letters of credit. There were $34 million and $28 million, respectively, of other standby letters of credit outstanding at February 1, 2020 and February 2, 2019.
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. Accounts Payable and Accrued Liabilities
February 1,
2020 February 2,
2019
(millions) Accounts payable $ 977 $ 983 Gift cards and customer rewards 839 856 Lease related liabilities (a) 399 180 Allowance for future sales returns 213 269 Accrued wages and vacation 194 268 Current portion of post employment and postretirement benefits 180 194 Taxes other than income taxes 145 134 Current portion of workers’ compensation and general liability reserves 105 112 Restructuring accruals, including severance 113 67 Accrued interest 41 51 Deferred real estate gains — 23 Other 242 229 $ 3,448 $ 3,366
(a) As of February 1, 2020, the balance includes the current portion of operating leases and finance leases accounted for under ASU 2016-02. As of February 2, 2019, lease related liabilities were accounted for under ASC Subtopic 840, Leases. See Note 4 for information on leases.
Changes in workers’ compensation and general liability reserves, including the current portion, are as follows:
2019 2018 2017 (millions) Balance, beginning of year $ 487 $ 497 $ 503 Charged to costs and expenses 120 130 144 Payments, net of recoveries (145 ) (140 ) (150 ) Balance, end of year $ 462 $ 487 $ 497
The non-current portion of workers’ compensation and general liability reserves is included in other liabilities on the Consolidated Balance Sheets. At February 1, 2020 and February 2, 2019, workers’ compensation and general liability reserves included $110 million and $112 million, respectively, which are covered by deposits and receivables included in current assets on the Consolidated Balance Sheets.
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8. Taxes
Income tax expense (benefit) is as follows:
2019 2018 2017 Current Deferred Total Current Deferred Total Current Deferred Total (millions) Federal $ 137 $ 4 $ 141 $ 156 $ 79 $ 235 $ 367 $ (462 ) $ (95 ) State and local 33 (10 ) 23 54 33 87 15 41 56 $ 170 $ (6 ) $ 164 $ 210 $ 112 $ 322 $ 382 $ (421 ) $ (39 )
On December 22, 2017, H.R. 1 was enacted into law. This new tax legislation, among other things, reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018.
In applying the impacts of the new tax legislation to its 2017 income tax provision, the Company remeasured its deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally a 21% federal tax rate and its related impact on the state tax rates. The resulting impact was the recognition of an income tax benefit of $584 million in the fourth quarter of 2017. In addition, applying the new U.S. federal corporate tax rate of 21% on January 1, 2018, resulted in a federal income tax statutory rate of 33.7% in 2017. Combining the impacts on the Company’s current income tax provision and the remeasurement of its deferred tax balances, the Company’s effective income tax rate was a benefit of 2.6% in 2017.
The income tax expense (benefit) reported differs from the expected tax computed by applying the federal income tax statutory rate of 21% for both 2019 and 2018, and 33.7% for 2017 to income before income taxes net of noncontrolling interest. The reasons for this difference and their tax effects are as follows:
2019 2018 2017 (millions) Expected tax $ 153 $ 300 $ 515 State and local income taxes, net of federal income tax benefit (a) 13 59 19 Federal tax reform deferred tax remeasurement — (17 ) (584 ) Tax impact of equity awards (a) 1 — 14 Federal tax credits (3 ) (16 ) (16 ) Change in valuation allowance 5 10 18 Other (5 ) (14 ) (5 ) $ 164 $ 322 $ (39 )
(a) 2017 included the recognition of approximately $15 million of net tax shortfalls associated with share-based payment awards due to the adoption of Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting. Historically, the Company had recognized such amounts as an offset to accumulated excess tax benefits previously recognized in additional paid-in capital.
The Company participates in the Internal Revenue Service (“IRS”) Compliance Assurance Program ("CAP"). As part of the CAP, tax years are audited on a contemporaneous basis so that all or most issues are resolved prior to the filing of the tax return. The IRS has completed examinations of 2016 and all prior tax years.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:
February 1,
2020 February 2,
2019
(millions) Deferred tax assets
Post employment and postretirement benefits $ 210 $ 208 Accrued liabilities accounted for on a cash basis for tax purposes 165 222 Lease liabilities 864 — Unrecognized state tax benefits and accrued interest 40 39 State operating loss and credit carryforwards 102 103 Other 110 172 Valuation allowance (80 ) (75 )
Total deferred tax assets 1,411 669 Deferred tax liabilities
Excess of book basis over tax basis of property and equipment (988 ) (987 ) Right of use assets (707 ) — Merchandise inventories (365 ) (398 ) Intangible assets (309 ) (308 ) Other (211 ) (214 )
Total deferred tax liabilities (2,580 ) (1,907 ) Net deferred tax liability $ (1,169) $ (1,238)
The valuation allowance at February 1, 2020 and February 2, 2019 relates to net deferred tax assets for state net operating loss and credit carryforwards. The net change in the valuation allowance amounted to an increase of $5 million for 2019. In 2018, the net change in the valuation allowance amounted to an increase of $10 million.
As of February 1, 2020, the Company had no federal net operating loss carryforwards, state net operating loss carryforwards, net of valuation allowances, of $218 million, and state credit carryforwards, net of valuation allowances, of $9 million, which will expire between 2020 and 2039.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
February 1,
2020 February 2,
2019 February 3,
2018
(millions) Balance, beginning of year $ 149 $ 140 $ 167 Additions based on tax positions related to the current year 18 17 7 Additions for tax positions of prior years 11 13 — Reductions for tax positions of prior years (20 ) (12 ) (23 ) Settlements (16 ) — (2 ) Statute expirations (9 ) (9 ) (9 ) Balance, end of year $ 133 $ 149 $ 140
Amounts recognized in the Consolidated Balance Sheets Current income taxes $ 12 $ 28 $ 11 Deferred income taxes 4 4 4 Other liabilities (a) 117 117 125
$ 133 $ 149 $ 140
(a) Unrecognized tax benefits not expected to be settled within one year are included within other liabilities on the Consolidated Balance Sheets.
F-31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Additional information regarding unrecognized benefits and related interest and penalties is as follow:
February 1,
2020 February 2,
2019 (millions) Amount of unrecognized tax benefits, net of deferred tax assets, that if recognized would affect the effective tax rate $ 106 $ 120 Accrued federal, state and local interest and penalties 60 56
Amounts recognized in the Consolidated Balance Sheets Current income taxes 4 28 Other liabilities 56 28
The Company classifies federal, state and local interest and penalties not expected to be settled within one year as other liabilities on the Consolidated Balance Sheets and follows a policy of recognizing all interest and penalties related to unrecognized tax benefits in income tax expense. The accrued federal, state and local interest and penalties primarily relate to state tax issues and the amount of penalties paid in prior periods, and the amounts of penalties accrued at February 1, 2020 and February 2, 2019, are insignificant. Federal, state and local interest and penalties amounted to an expense of $6 million for 2019, an expense of $5 million for 2018, and a credit of $3 million for 2017.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before 2016. With respect to state and local jurisdictions, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for years before 2010. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have been accrued for any adjustments that are expected to result from the years still subject to examination.
As of February 1, 2020, the Company believes it is reasonably possible that certain unrecognized tax benefits ranging from zero to $56 million may be recognized by the end of 2020. It is reasonably possible that there could be other material changes to the amount of uncertain tax positions due to activities of the taxing authorities, settlement of audit issues or the reassessment of existing uncertain tax positions; however, the Company is not able to estimate the impact of these items at this time.
F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. Retirement Plans The Company has defined contribution plans which cover substantially all employees who work 1,000 hours or more in a year. In addition, the Company has a funded
defined benefit plan (“Pension Plan”) and an unfunded defined benefit supplementary retirement plan (“SERP”), which provides benefits, for certain employees, in excess of qualified plan limitations. Effective January 1, 2012, the Pension Plan was closed to new participants, with limited exceptions, and effective January 2, 2012, the SERP was closed to new participants.
In February 2013, the Company announced changes to the Pension Plan and SERP whereby eligible employees no longer earn future pension service credits after December 31, 2013, with limited exceptions. All retirement benefits attributable to service in subsequent periods are provided through defined contribution plans.
Retirement expenses, excluding settlement charges, included the following components:
2019 2018 2017 (millions) 401(k) Qualified Defined Contribution Plan $ 96 $ 96 $ 93 Non-Qualified Defined Contribution Plan 2 1 1 Pension Plan (54 ) (64 ) (82 ) Supplementary Retirement Plan 30 31 31 $ 74 $ 64 $ 43
The Company estimates the service and interest cost components of net periodic benefit costs for the Pension Plan and SERP. This method uses a full yield curve approach in the estimation of these components of net periodic benefit costs. Under this approach, the Company applies discounting using individual spot rates from the yield curve composed of the rates of return from a portfolio of high quality corporate debt securities available at the measurement date. These spot rates align to each of the projected benefit obligation and service cost cash flows.
Defined Contribution Plans The Company has a qualified plan that permits participating associates to defer eligible compensation up to the maximum limits allowable under the Internal Revenue
Code. Beginning January 1, 2014, the Company has a non-qualified plan which permits participating associates to defer eligible compensation above the limits of the qualified plan. The Company contributes a matching percentage of employee contributions under both the qualified and non-qualified plans. Effective January 1, 2014, the Company's matching contribution to the qualified plan was enhanced for all participating employees, with limited exceptions. Prior to January 1, 2014, the matching contribution rate under the qualified plan was higher for those employees not eligible for the Pension Plan than for employees eligible for the Pension Plan.
The liability related to the qualified plan matching contribution, which is reflected in accounts payable and accrued liabilities on the Consolidated Balance Sheets, was $104 million at February 1, 2020 and $103 million at February 2, 2019. Expense related to matching contributions for the qualified plan amounted to $96 million for 2019 and 2018, and $93 million for 2017.
At February 1, 2020 and February 2, 2019, the liability under the non-qualified plan, which is reflected in other liabilities on the Consolidated Balance Sheets, was $34 million and $27 million, respectively. The liability related to the non-qualified plan matching contribution, which is reflected in accounts payable and accrued liabilities on the Consolidated Balance Sheets, was $2 million at February 1, 2020 and February 2, 2019. Expense related to matching contributions for the non-qualified plan amounted to $2 million for 2019 and $1 million for both 2018 and 2017. In connection with the non-qualified plan, the Company had mutual fund investments at February 1, 2020 and February 2, 2019 of $34 million and $27 million, respectively, which are included in prepaid expenses and other current assets on the Consolidated Balance Sheets.
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pension Plan The following provides a reconciliation of benefit obligations, plan assets, and funded status of the Pension Plan as of February 1, 2020 and February 2, 2019:
2019 2018 (millions) Change in projected benefit obligation
Projected benefit obligation, beginning of year $ 3,011 $ 3,271 Service cost 5 5 Interest cost 103 109 Actuarial (gain) loss 463 (27 ) Benefits paid (261 ) (347 ) Projected benefit obligation, end of year 3,321 3,011
Changes in plan assets Fair value of plan assets, beginning of year 3,018 3,409 Actual return on plan assets 602 (44 ) Company contributions — — Benefits paid (261 ) (347 ) Fair value of plan assets, end of year 3,359 3,018
Funded status at end of year $ 38 $ 7 Amounts recognized in the Consolidated Balance Sheets at
February 1, 2020 and February 2, 2019 Other assets $ 38 $ 7
Amounts recognized in accumulated other comprehensive loss at
February 1, 2020 and February 2, 2019 Net actuarial loss $ 1,086 $ 1,109
The accumulated benefit obligation for the Pension Plan was $3,320 million as of February 1, 2020 and $3,010 million as of February 2, 2019.
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net pension costs, settlement charges and other amounts recognized in other comprehensive loss for the Pension Plan included the following actuarially determined components:
2019 2018 2017 (millions) Net Periodic Pension Cost
Service cost $ 5 $ 5 $ 6 Interest cost 103 109 104 Expected return on assets (191 ) (206 ) (223 ) Amortization of net actuarial loss 29 28 31 Amortization of prior service credit — — —
(54 ) (64 ) (82 ) Settlement charges 45 78 89 Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Loss Net actuarial (gain) loss 51 223 (120 ) Amortization of net actuarial loss (29 ) (28 ) (31 ) Settlement charges (45 ) (78 ) (89 )
(23 ) 117 (240 ) Total recognized $ (32 ) $ 131 $ (233 )
The estimated net actuarial loss for the Pension Plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2020 is $42 million.
The following weighted average assumptions were used to determine the projected benefit obligations for the Pension Plan at February 1, 2020 and February 2, 2019:
2019 2018 Discount rate 2.83 % 4.03 % Rate of compensation increases 3.25 % 4.00 %
The following weighted average assumptions were used to determine the net periodic pension cost for the Pension Plan:
2019 2018 2017 Discount rate used to measure service cost 4.09 % 3.77% - 4.46% 3.75% - 4.06% Discount rate used to measure interest cost 3.67 % 3.39% - 4.06% 3.12% - 3.31% Expected long-term return on plan assets 6.50 % 6.75 % 7.00 % Rate of compensation increases 4.00 % 4.00 % 4.10 %
The Pension Plan’s assumptions are evaluated annually, and at interim re-measurements if required, and updated as necessary. Due to settlement accounting and re- measurements during 2018 and 2017, the discount rate used to measure service cost and the discount rate used to measure interest cost varied between periods. The table above shows the range of rates used to determine net periodic expense for the Pension Plan.
F-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The discount rate used to determine the present value of the projected benefit obligation for the Pension Plan is based on a yield curve constructed from a portfolio of high quality corporate debt securities with various maturities. Each year’s expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate for the projected benefit obligation.
The Company develops its expected long-term rate of return on plan asset assumption by evaluating input from several 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. Expected returns for each major asset class are considered along with their volatility and the expected correlations among them. These expectations are based upon historical relationships as well as forecasts of how future returns may vary from historical returns. Returns by asset class and correlations among asset classes are combined using the target asset allocation to derive an expected return for the portfolio as a whole. Long-term historical returns of the portfolio are also considered. Portfolio returns are calculated net of all expenses, therefore, the Company also analyzes expected costs and expenses, including investment management fees, administrative expenses, Pension Benefit Guaranty Corporation premiums and other costs and expenses. As of February 1, 2020, the Company lowered the assumed annual long-term rate of return for the Pension Plan's assets from 6.50% to 6.25% based on expected future returns on the portfolio of assets.
The assets of the Pension Plan are managed by investment specialists with the primary objectives of payment of benefit obligations to Plan participants and an ultimate realization of investment returns over longer periods in excess of inflation. The Company employs a total return investment approach whereby a mix of domestic and foreign equity securities, fixed income securities and other investments is used to maximize the long-term return on the assets of the Pension Plan for a prudent level of risk. Risks are mitigated through asset diversification and the use of multiple investment managers. The target allocation for plan assets is currently 30% equity securities, 63% debt securities, 2% real estate and 5% private equities.
The Company generally employs investment managers to specialize in a specific asset class. These managers are chosen and monitored with the assistance of professional advisors, using criteria that include organizational structure, investment philosophy, investment process, performance compared to market benchmarks and peer groups.
The Company periodically conducts an analysis of the behavior of the Pension Plan’s assets and liabilities under various economic and interest rate scenarios to ensure that the long-term target asset allocation is appropriate given the liabilities.
F-36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of the Pension Plan assets as of February 1, 2020, excluding interest and dividend receivables and pending investment purchases and sales, by asset category are as follows:
Fair Value Measurements
Total
Quoted Prices in Active Markets for
Identical Assets (Level 1)
Significant Observable
Inputs (Level 2)
Significant Unobservable
Inputs (Level 3)
(millions)
Money market funds $ 37 $ 37 $ — $ — Equity securities:
U.S. stocks 122 122 — — U.S. pooled funds 474 474 — — International pooled funds (a) 357 82 — —
Fixed income securities: U.S. Treasury bonds 58 — 58 — Other Government bonds 61 — 61 — Agency backed bonds 13 — 13 — Corporate bonds 615 — 615 — Mortgage-backed securities 23 — 23 — Asset-backed securities 10 — 10 — Pooled funds 1,442 1,442 — —
Other types of investments: Real estate (a) 37 — — — Private equity (a) 167 — — — Derivatives in a positive position 4 — 4 — Derivatives in a negative position (6 ) — (6 ) —
Total $ 3,414 $ 2,157 $ 778 $ — (a) Certain investments that are measured at fair value using the net asset value per share as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.
F-37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair values of the Pension Plan assets as of February 2, 2019, excluding interest and dividend receivables and pending investment purchases and sales, by asset category are as follows:
Fair Value Measurements
Total
Quoted Prices in Active Markets for
Identical Assets (Level 1)
Significant Observable
Inputs (Level 2)
Significant Unobservable
Inputs (Level 3)
(millions)
Short term investments $ 1 $ — $ 1 $ — Money market funds 33 33 — — Equity securities:
U.S. stocks 117 117 — — U.S. pooled funds 398 398 — — International pooled funds (a) 347 78 — —
Fixed income securities: U.S. Treasury bonds 52 — 52 — Other Government bonds 53 — 53 — Agency backed bonds 11 — 11 — Corporate bonds 513 — 513 — Mortgage-backed securities 15 — 15 — Asset-backed securities 11 — 11 — Pooled funds 1,270 1,270 — —
Other types of investments: Real estate (a) 56 — — — Private equity (a) 185 — — — Derivatives in a positive position 6 — 6 — Derivatives in a negative position (2 ) — (2 ) —
Total $ 3,066 $ 1,896 $ 660 $ — (a) Certain investments that are measured at fair value using the net asset value per share as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the fair value of plan assets.
Corporate bonds consist primarily of investment grade bonds of U.S. issuers from diverse industries.
The fair value of certain pooled funds including equity securities, real estate and private equity investments represents the reported net asset value of shares or underlying assets of the investment as a practical expedient to estimate fair value. International equity pooled funds seek to provide long-term capital growth and income by investing in equity securities of non-U.S. companies located both in developed and emerging markets. There are generally no redemption restrictions or unfunded commitments related to these equity securities.
F-38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Real estate investments include several funds which seek risk-adjusted return by providing a stable, income-driven rate of return over the long term with high potential for growth of net investment income and appreciation of value. The real estate investments are diversified across property types and geographical areas primarily in the United States of America. Private equity investments have an objective of realizing aggregate long-term returns in excess of those available from investments in the public equity markets. Private equity investments generally consist of limited partnerships in the United States of America, Europe and Asia. Private equity and real estate investments are valued using fair values per the most recent financial reports provided by the investment sponsor, adjusted as appropriate for any lag between the date of the financial reports and the Company’s reporting date.
Due to the nature of the underlying assets of the real estate and private equity investments, changes in market conditions and the economic environment may significantly impact the net asset value of these investments and, consequently, the fair value of the Pension Plan’s investments. These investments are redeemable at net asset value to the extent provided in the documentation governing the investments. However, these redemption rights may be restricted in accordance with the governing documents. Redemption of these investments is subject to restrictions including lock-up periods where no redemptions are allowed, restrictions on redemption frequency and advance notice periods for redemptions. As of February 1, 2020 and February 2, 2019, certain of these investments are generally subject to lock-up periods, ranging from one to nine years, certain of these investments are subject to restrictions on redemption frequency, ranging from daily to four times per year, and certain of these investments are subject to advance notice requirements. As of February 1, 2020 and February 2, 2019, the Pension Plan had unfunded commitments related to certain of these investments totaling $43 million and $49 million, respectively.
The Company does not anticipate making funding contributions to the Pension Plan in 2020.
The following benefit payments are estimated to be paid from the Pension Plan:
(millions)
Fiscal year 2020 $ 325 2021 274 2022 259 2023 250 2024 234 2025-2029 1,010
F-39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Supplementary Retirement Plan The following provides a reconciliation of benefit obligations, plan assets and funded status of the supplementary retirement plan as of February 1, 2020 and
February 2, 2019:
2019 2018 (millions) Change in projected benefit obligation
Projected benefit obligation, beginning of year $ 644 $ 703 Service cost — — Interest cost 21 23 Actuarial (gain) loss 87 (9 ) Benefits paid (71 ) (73 ) Projected benefit obligation, end of year 681 644
Change in plan assets Fair value of plan assets, beginning of year — — Company contributions 71 73 Benefits paid (71 ) (73 ) Fair value of plan assets, end of year — —
Funded status at end of year $ (681 ) $ (644 ) Amounts recognized in the Consolidated Balance Sheets at
February 1, 2020 and February 2, 2019 Accounts payable and accrued liabilities $ (55 ) $ (68 ) Other liabilities (626 ) (576 )
$ (681 ) $ (644 ) Amounts recognized in accumulated other comprehensive loss at
February 1, 2020 and February 2, 2019 Net actuarial loss $ 283 $ 218 Prior service cost 6 6
$ 289 $ 224
The accumulated benefit obligation for the supplementary retirement plan was $681 million as of February 1, 2020 and $644 million as of February 2, 2019.
F-40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net pension costs, settlement charges and other amounts recognized in other comprehensive loss for the supplementary retirement plan included the following actuarially determined components:
2019 2018 2017 (millions) Net Periodic Pension Cost
Service cost $ — $ — $ — Interest cost 21 23 22 Amortization of net actuarial loss 9 7 8 Amortization of prior service cost — 1 1
30 31 31 Settlement charges 13 10 16 Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Loss Net actuarial loss (gain) 87 (9 ) 20 Amortization of net actuarial loss (9 ) (7 ) (8 ) Amortization of prior service cost — (1 ) (1 ) Settlement charges (13 ) (10 ) (16 )
65 (27 ) (5 ) Total recognized $ 108 $ 14 $ 42
The estimated net actuarial loss and prior service cost for the supplementary retirement plan that will be amortized from accumulated other comprehensive loss into net periodic benefit cost during 2020 is $12 million.
The following weighted average assumption was used to determine the projected benefit obligations for the supplementary retirement plan at February 1, 2020 and February 2, 2019:
2019 2018 Discount rate 2.89 % 4.10 %
The following weighted average assumption was used to determine net pension costs for the supplementary retirement plan:
2019 2018 2017 Discount rate used to measure interest cost 2.65% - 3.69% 3.39% - 4.09% 3.10% - 3.26%
The supplementary retirement plan’s assumptions are evaluated annually, and at interim re-measurements if required, and updated as necessary. Due to settlement accounting and re-measurements during 2019, 2018 and 2017, the discount rate used to measure interest cost varied between periods. The table above shows the range of rates used to determine net periodic expense for the supplementary retirement plan.
The discount rate used to determine the present value of the projected benefit obligation for the supplementary retirement plan is based on a yield curve constructed from a portfolio of high quality corporate debt securities with various maturities. Each year’s expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate for the projected benefit obligation.
F-41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following benefit payments are estimated to be funded by the Company and paid from the supplementary retirement plan:
(millions)
Fiscal year 2020 $ 55 2021 50 2022 47 2023 46 2024 45 2025-2029 203
F-42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10. Postretirement Health Care and Life Insurance Benefits In addition to pension and other supplemental benefits, certain retired employees currently are provided with specified health care and life insurance benefits. Eligibility
requirements for such benefits vary by division and subsidiary, but generally state that benefits are available to eligible employees who were hired prior to a certain date and retire after a certain age with specified years of service. Certain employees are subject to having such benefits modified or terminated.
The following provides a reconciliation of benefit obligations, plan assets, and funded status of the postretirement obligations as of February 1, 2020 and February 2, 2019:
2019 2018 (millions) Change in accumulated postretirement benefit obligation
Accumulated postretirement benefit obligation, beginning of year $ 137 $ 156 Service cost — — Interest cost 5 5 Actuarial loss (gain) 5 (11 ) Medicare Part D subsidy — — Benefits paid (14 ) (13 ) Accumulated postretirement benefit obligation, end of year 133 137
Change in plan assets Fair value of plan assets, beginning of year — — Company contributions 14 13 Benefits paid (14 ) (13 ) Fair value of plan assets, end of year — —
Funded status at end of year $ (133 ) $ (137 ) Amounts recognized in the Consolidated Balance Sheets at
February 1, 2020 and February 2, 2019 Accounts payable and accrued liabilities $ (14 ) $ (15 ) Other liabilities (119 ) (122 )
$ (133 ) $ (137 ) Amounts recognized in accumulated other comprehensive loss at
February 1, 2020 and February 2, 2019 Net actuarial gain $ (30 ) $ (41 ) Prior service credit (8 ) (9 )
$ (38 ) $ (50 )
F-43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net postretirement benefit costs and other amounts recognized in other comprehensive loss included the following actuarially determined components:
2019 2018 2017 (millions)
Net Periodic Postretirement Benefit Cost Service cost $ — $ — $ — Interest cost 5 5 5 Amortization of net actuarial gain (6 ) (5 ) (5 ) Amortization of prior service credit (1 ) (1 ) —
(2 ) (1 ) — Other Changes in Plan Assets and Projected Benefit Obligation
Recognized in Other Comprehensive Loss Net actuarial loss (gain) 5 (11 ) (9 ) Amortization of net actuarial gain 6 5 5 Amortization of prior service credit 1 1 — Prior service credit — — (10 )
12 (5 ) (14 ) Total recognized $ 10 $ (6 ) $ (14 )
The estimated net actuarial gain and prior service credit that will be amortized from accumulated other comprehensive loss into net periodic postretirement benefit cost during 2020 is $5 million.
The following weighted average assumption was used to determine the accumulated postretirement benefit obligations at February 1, 2020 and February 2, 2019:
2019 2018 Discount rate 2.81 % 4.02 %
The following weighted average assumption was used to determine the net postretirement benefit costs for the postretirement obligations:
2019 2018 2017 Discount rate used to measure interest cost 3.57 % 3.28 % 3.17 %
The accumulated postretirement benefit obligation assumptions are evaluated annually, and at interim re-measurements if required, and updated as necessary.
The discount rate used to determine the present value of the Company’s accumulated postretirement benefit obligations is based on a yield curve constructed from a portfolio of high quality corporate debt securities with various maturities. Each year’s expected future benefit payments are discounted to their present value at the appropriate yield curve rate, thereby generating the overall discount rate for the accumulated postretirement benefit obligations.
The Company estimates the interest cost component of net periodic benefit costs using a full yield curve approach in the estimation of these components of net periodic benefit costs. Under this approach, the Company applies discounting using individual spot rates from the yield curve composed of the rates of return from a portfolio of high quality corporate debt securities available at the measurement date. These spot rates align to each of the projected benefit obligation and service cost cash flows.
F-44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The future medical benefits provided by the Company for certain employees are based on a fixed amount per year of service, and the accumulated postretirement benefit obligation is not affected by increases in health care costs. However, the future medical benefits provided by the Company for certain other employees are affected by increases in health care costs.
The following provides the assumed health care cost trend rates related to the Company’s accumulated postretirement benefit obligations at February 1, 2020 and February 2, 2019:
2019 2018 Health care cost trend rates assumed for next year 5.25% - 8.63% 5.38% - 9.31% Rates to which the cost trend rate is assumed to decline (the ultimate trend rate) 4.5% 4.5% Year that the rate reaches the ultimate trend rate 2027 2027
The assumed health care cost trend rates have an impact on the amounts reported for the accumulated postretirement benefit obligations. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:
1 – Percentage Point Increase
1 – Percentage Point Decrease
(millions) Effect on total of service and interest cost $ — $ — Effect on accumulated postretirement benefit obligations $ 7 $ (6 )
The following table reflects the benefit payments estimated to be funded by the Company and paid from the accumulated postretirement benefit obligations and estimated federal subsidies expected to be received under the Medicare Prescription Drug Improvement and Modernization Act of 2003:
Expected Benefit
Payments
Expected Federal Subsidy
(millions)
Fiscal Year 2020 $ 14 $ — 2021 13 — 2022 12 — 2023 11 — 2024 10 — 2025-2029 41 1
F-45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. Stock-Based Compensation The following disclosures present the Company’s equity plans on a combined basis. The equity plans are administered by the Compensation and Management
Development Committee of the Board of Directors (the “CMD Committee”). The CMD Committee is authorized to grant options, stock appreciation rights, restricted stock and restricted stock units to officers and key employees of the Company and its subsidiaries and to non-employee directors. The equity plans are intended to help the Company attract and retain directors, officers, other key executives and employees and is also intended to provide incentives and rewards relating to the Company’s business plans to encourage such persons to devote themselves to the business of the Company. There have been no grants of stock appreciation rights under the equity plans.
Stock option grants have an exercise price at least equal to the market value of the underlying common stock on the date of grant, have ten-year terms and typically vest ratably over four years of continued employment. Restricted stock and time-based restricted stock unit awards generally vest one to four years from the date of grant. Performance-based restricted stock units generally are earned based on the attainment of specified goals achieved over the performance period.
As of February 1, 2020, approximately 17 million shares of common stock were available for additional grants pursuant to the Company’s equity plans. Shares awarded are generally issued from the Company's treasury stock.
Stock-based compensation expense included the following components:
2019 2018 2017 (millions) Stock options $ 15 $ 24 $ 34 Restricted stock units 23 39 24 $ 38 $ 63 $ 58
All stock-based compensation expense is recorded in SG&A expense in the Consolidated Statements of Income.
Stock Options The fair value of stock options granted during 2019, 2018 and 2017 and the weighted average assumptions used to estimate the fair value are as follows:
2019 2018 2017 Weighted average grant date fair value of stock options
granted during the period $ 5.11 $ 7.43 $ 5.84 Dividend yield 6.3 % 5.2 % 6.2 % Expected volatility 40.6 % 41.1 % 41.8 % Risk-free interest rate 2.4 % 2.7 % 1.9 % Expected life 5.5 years 5.6 years 5.7 years
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company estimates the expected volatility and expected option life assumption consistent with ASC Topic 718, Compensation – Stock Compensation. The expected volatility of the Company’s common stock at the date of grant is estimated based on a historic volatility rate and the expected option life is calculated based on historical stock option experience as the best estimate of future exercise patterns. The dividend yield assumption is based on historical and anticipated dividend payouts. The risk-free interest rate assumption is based on observed interest rates consistent with the expected life of each stock option grant. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. Compensation expense is recorded for all stock options expected to vest based on the amortization of the fair value at the date of grant on a straight-line basis primarily over the vesting period of the options.
F-46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Activity related to stock options for 2019 is as follows:
Shares
Weighted Average Exercise
Price
Weighted Average
Remaining Contractual
Life
Aggregate Intrinsic
Value
(thousands) (years) (millions) Outstanding, beginning of period 18,893 $ 39.73 Granted 1,994 23.94 Canceled or forfeited (1,731 ) 32.73 Exercised (657 ) 9.08 Outstanding, end of period 18,499 $ 39.77 Exercisable, end of period 14,258 $ 42.97 4.2 $ — Options expected to vest 3,133 $ 29.20 7.9 $ —
Additional information relating to stock options is as follows:
2019 2018 2017 (millions) Intrinsic value of options exercised $ 10 $ 27 $ 3 Cash received from stock options exercised 6 45 6
As of February 1, 2020, the Company had $15 million of unrecognized compensation costs related to nonvested stock options, which is expected to be recognized over a weighted average period of approximately 2.2 years.
Restricted Stock Units The weighted average grant date fair values of performance-based and time-based restricted stock units granted during 2019, 2018 and 2017 are as follows:
2019 2018 2017 Restricted stock units (performance-based) $ 24.28 $ 30.64 $ 27.16 Restricted stock units (time-based) 17.81 25.57 20.75
During 2019, 2018 and 2017, the CMD Committee approved awards of performance-based restricted stock units to certain senior executives of the Company. Each award reflects a target number of shares (“Target Shares”) that may be issued to the award recipient. These awards may be earned upon the completion of three-year performance periods ending January 29, 2022, January 30, 2021 and February 1, 2020, respectively. Whether units are earned at the end of the performance period will be determined based on the achievement of certain performance objectives over the performance period. The performance objectives include achieving an EBITDA as a percent to sales ratio, owned plus licensed comparable sales growth and a return on invested capital ratio. The performance-based restricted stock units also include a performance objective relating to relative total shareholder return (“TSR”). Relative TSR reflects the change in the value of the Company’s common stock over the performance period in relation to the change in the value of the common stock of an executive compensation peer group over the performance period, assuming the reinvestment of dividends. Depending on the results achieved during the three-year performance periods, the actual number of shares that a grant recipient receives at the end of the period may range from 0% to 200% of the Target Shares granted.
The fair value of the Target Shares and restricted stock awards are based on the fair value of the underlying shares on the date of grant. The fair value of the portion of the Target Shares that relate to a relative TSR performance objective was determined using a Monte Carlo simulation analysis to estimate the total shareholder return ranking of the Company
F-47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
among an executive compensation peer group over the remaining performance periods. The expected volatility of the Company’s common stock at the date of grant was estimated based on a historical average volatility rate for the approximate three-year performance period. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free interest rate assumption was based on observed interest rates consistent with the approximate three-year performance measurement period.
The fair value of a restricted stock unit award at the grant date is equal to the market price of the Company's common stock on the grant date. Compensation expense is recorded for all restricted stock unit awards based on the amortization of the fair market value at the date of grant over the period the restrictions lapse or over the performance period of the performance-based restricted stock units. As of February 1, 2020, the Company had $43 million of unrecognized compensation costs related to nonvested restricted stock units, which is expected to be recognized over a weighted average period of approximately 2.0 years.
Activity related to restricted stock units for 2019 is as follows:
Shares
Weighted Average
Grant Date Fair Value
(thousands) Nonvested, beginning of period 4,143 $ 26.33 Granted – performance-based 861 24.28 Performance adjustment (26 ) 28.17 Granted – time-based 1,443 17.81 Forfeited (909 ) 23.88 Vested (765 ) 29.19 Nonvested, end of period 4,747 $ 23.37
F-48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. Shareholders’ Equity The authorized shares of the Company consist of 125 million shares of preferred stock (“Preferred Stock”), par value of $0.01 per share, with no shares issued, and
1,000 million shares of common stock, par value of $0.01 per share, with 333.6 million shares of common stock issued and 309.0 million shares of common stock outstanding at February 1, 2020, and with 333.6 million shares of common stock issued and 307.5 million shares of common stock outstanding at February 2, 2019 (with shares held in the Company’s treasury being treated as issued, but not outstanding).
No shares of common stock were retired during 2019, 2018 and 2017.
Beginning in January 2000, the Company’s Board of Directors approved various authorizations to purchase, in the aggregate, up to $18,000 million of common stock, which includes the Company's Board of Directors approval of an additional authorization to purchase common stock of $1,500 million on February 26, 2016. As of February 1, 2020, $1,716 million of authorization remained unused.
Common Stock The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders. Subject to preferential rights
that may be applicable to any Preferred Stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the Board of Directors in its discretion, out of funds legally available.
Treasury Stock Treasury stock contains shares repurchased under the share repurchase program, shares repurchased to cover employee tax liabilities related to stock plan activity and
shares maintained in a trust related to deferred compensation plans. Under the deferred compensation plans, shares are maintained in a trust to cover the number estimated to be needed for distribution on account of stock credits currently outstanding.
F-49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Changes in the Company’s common stock issued and outstanding, including shares held by the Company’s treasury, are as follows:
Treasury Stock
Common Stock Issued
Deferred Compensation
Plans Other Total
Common Stock
Outstanding
(thousands) Balance at January 28, 2017 333,606 (1,096 ) (28,447 ) (29,543 ) 304,063 Stock issued under stock plans (119 ) 590 471 471 Stock repurchases (38 ) (38 ) (38 ) Deferred compensation plan distributions 269 269 269 Balance at February 3, 2018 333,606 (946 ) (27,895 ) (28,841 ) 304,765 Stock issued under stock plans (106 ) 2,756 2,650 2,650 Stock repurchases (6 ) (6 ) (6 ) Deferred compensation plan distributions 111 111 111 Balance at February 2, 2019 333,606 (941 ) (25,145 ) (26,086 ) 307,520 Stock issued under stock plans (130 ) 1,510 1,380 1,380 Stock repurchases (38 ) (38 ) (38 ) Deferred compensation plan distributions 169 169 169 Balance at February 1, 2020 333,606 (902 ) (23,673 ) (24,575 ) 309,031
Accumulated Other Comprehensive Loss For the Company, the only component of accumulated other comprehensive loss for 2019, 2018 and 2017 relates to post employment and postretirement plan items. The
net actuarial gains and losses and prior service costs and credits related to post employment and postretirement benefit plans are reclassified out of accumulated other comprehensive loss and included in the computation of net periodic benefit cost (income) and are included in benefit plan income, net in the Consolidated Statements of Income. In addition, the Company incurred the pro-rata recognition of net actuarial losses associated with an increase in lump sum distributions associated with store closings, organizational restructuring, and periodic distribution activity as settlement charges in the Consolidated Statements of Income. See Note 9, Retirement Plans, and Note 10, Postretirement Health Care and Life Insurance Benefits, for further information.
F-50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
13. Fair Value Measurements and Concentrations of Credit Risk The following table shows the Company’s financial assets that are required to be measured at fair value on a recurring basis, by level within the hierarchy as defined by
applicable accounting standards:
February 1, 2020 February 2, 2019 Fair Value Measurements Fair Value Measurements
Total
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Observable
Inputs (Level 2)
Significant Unobservable
Inputs (Level 3) Total
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Observable
Inputs (Level 2)
Significant Unobservable
Inputs (Level 3)
(millions)
Marketable equity and debt securities $ 132 $ 34 $ 98 $ — $ 101 $ 27 $ 74 $ —
Other financial instruments not measured at fair value on a recurring basis include cash and cash equivalents, receivables, certain-short term investments and other assets, short-term debt, merchandise accounts payable, accounts payable and accrued liabilities and long-term debt. With the exception of long-term debt, the carrying amount approximates fair value because of the short maturity of these instruments. The fair values of long-term debt, excluding capitalized leases, are generally estimated based on quoted market prices for identical or similar instruments, and are classified as Level 2 measurements within the hierarchy as defined by applicable accounting standards.
The following table shows the estimated fair value of the Company’s long-term debt, excluding capital leases and other obligations:
February 1, 2020 February 2, 2019
Notional Amount
Carrying Amount
Fair Value
Notional Amount
Carrying Amount
Fair Value
(millions)
Long-term debt $ 3,607 $ 3,621 $ 3,702 $ 4,671 $ 4,683 $ 4,407
The following table shows certain of the Company’s long-lived assets, which includes tangible and intangible assets, that were measured at fair value on a nonrecurring basis during 2019 and 2018:
February 1, 2020 February 2, 2019 Fair Value Measurements Fair Value Measurements
Total
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Observable
Inputs (Level 2)
Significant Unobservable
Inputs (Level 3) Total
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Observable
Inputs (Level 2)
Significant Unobservable
Inputs (Level 3)
(millions)
Long-lived assets $ 129 $ — $ — $ 129 $ 24 $ — $ — $ 24
During 2019, long-lived assets with a carrying value of $326 million were written down to their fair value of $129 million, resulting in asset impairment charges of $197 million. During 2018, long-lived assets with a carrying value of $84 million were written down to their fair value of $24 million, resulting in asset impairment charges of $60 million. The fair values of these assets were calculated based on the projected cash flows and an estimated risk-adjusted rate of return that would be used by market participants in valuing these assets or prices of similar assets.
F-51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments. The Company places its temporary cash investments in what it believes to be high credit quality financial instruments. 14. Earnings Per Share Attributable to Macy's, Inc.
Shareholders The following table sets forth the computation of basic and diluted earnings per share attributable to Macy's, Inc. shareholders:
2019 2018 2017
Net
Income Shares Net
Income Shares Net Income Shares (millions, except per share data)
Net income attributable to Macy's, Inc. shareholders
and average number of shares outstanding $ 564 308.8 $ 1,108 306.8 $ 1,566 304.5 Shares to be issued under deferred compensation
and other plans — 0.9 — 0.9 — 0.9 $ 564 309.7 $ 1,108 307.7 $ 1,566 305.4
Basic earnings per share attributable to Macy's, Inc. shareholders $ 1.82 $ 3.60 $ 5.13
Effect of dilutive securities: Stock options and restricted
stock units — 1.7 — 3.7 — 1.4 $ 564 311.4 $ 1,108 311.4 $ 1,566 306.8
Diluted earnings per share attributable to Macy's, Inc. shareholders $ 1.81 $ 3.56 $ 5.10
In addition to the stock options and restricted stock units reflected in the foregoing table, stock options to purchase 18.5 million shares of common stock and restricted stock units relating to 1.7 million shares of common stock were outstanding at February 1, 2020, stock options to purchase 15.3 million of shares of common stock and restricted stock units relating to 0.9 million shares of common stock were outstanding at February 2, 2019, and stock options to purchase 16.6 million of shares of common stock and restricted stock units relating to 0.9 million shares of common stock were outstanding at February 3, 2018, but were not included in the computation of diluted earnings per share attributable to Macy's, Inc. shareholders for 2019, 2018 and 2017, respectively, because their inclusion would have been antidilutive or they were subject to performance conditions that had not been met.
F-52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. Quarterly Results (unaudited) Unaudited quarterly results for the last two years were as follows:
First
Quarter Second Quarter
Third Quarter
Fourth Quarter
(millions, except per share data) 2019:
Net sales $ 5,504 $ 5,546 $ 5,173 $ 8,337 Credit card revenues, net 172 176 183 239
Cost of sales (3,403 ) (3,395 ) (3,106 ) (5,266 ) Selling, general and administrative expenses (2,112 ) (2,177 ) (2,202 ) (2,509 ) Gains on sale of real estate 43 7 17 95 Restructuring, impairment, store closing and other costs (1 ) (2 ) (13 ) (337 ) Benefit plan income, net 7 8 8 8 Settlement charges — — (12 ) (46 ) Net income attributable to Macy's, Inc. shareholders 136 86 2 340 Basic earnings per share attributable to Macy's, Inc. shareholders 0.44 0.28 0.01 1.10 Diluted earnings per share attributable to Macy's, Inc. shareholders 0.44 0.28 0.01 1.09
2018: Net sales $ 5,541 $ 5,572 $ 5,404 $ 8,455 Credit card revenues, net 157 186 185 240
Cost of sales (3,382 ) (3,320 ) (3,226 ) (5,288 ) Selling, general and administrative expenses (2,083 ) (2,164 ) (2,255 ) (2,538 ) Gains on sale of real estate 24 46 42 278 Restructuring, impairment, store closing and other costs (19 ) (17 ) (3 ) (97 ) Benefit plan income, net 11 11 9 8 Settlement charges — (50 ) (23 ) (15 ) Net income attributable to Macy's, Inc. shareholders 139 166 62 740 Basic earnings per share attributable to Macy's, Inc. shareholders 0.45 0.54 0.20 2.40 Diluted earnings per share attributable to Macy's, Inc. shareholders 0.45 0.53 0.20 2.37
Note: Annual results may not equal the sum of the quarterly results for the respective periods due to rounding conventions.
F-53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
16. Condensed Consolidating Financial Information Certain debt obligations of the Company described in Note 6, Financing, which constitute debt obligations of Parent’s 100%-owned subsidiary, Macy’s Retail Holdings,
Inc. (“Subsidiary Issuer”), are fully and unconditionally guaranteed by Parent. In the following condensed consolidating financial statements, “Other Subsidiaries” includes all other direct subsidiaries of Parent, including Bluemercury, Inc., FDS Bank, West 34th Street Insurance Company New York, Macy's Merchandising Corporation, Macy’s Merchandising Group, Inc. and its subsidiaries Macy's Merchandising Group (Hong Kong) Limited, Macy's Merchandising Group Procurement, LLC, Macy’s Merchandising Group International, LLC, Macy's Merchandising Group International (Hong Kong) Limited, and Macy's China Limited. “Subsidiary Issuer” includes operating divisions and non-guarantor subsidiaries of the Subsidiary Issuer on an equity basis. The assets and liabilities and results of operations of the non-guarantor subsidiaries of the Subsidiary Issuer are also reflected in “Other Subsidiaries.”
Condensed Consolidating Statements of Comprehensive Income for 2019, 2018 and 2017, Consolidating Balance Sheets as of February 1, 2020 and February 2, 2019, and the related Condensed Consolidating Statements of Cash Flows for 2019, 2018, and 2017 are presented on the following pages.
F-54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC. Condensed Consolidating Statement of Comprehensive Income
For 2019 (millions)
Parent Subsidiary
Issuer Other
Subsidiaries Consolidating Adjustments Consolidated
Net sales $ — $ 9,477 $ 20,831 $ (5,748) $ 24,560 Credit card revenues (expense), net — (7 ) 778 — 771
Cost of sales — (5,834) (15,085 ) 5,748 (15,171 ) Selling, general and administrative expenses 2 (3,490) (5,510) — (8,998) Gains on sale of real estate — 37 125 — 162 Restructuring, impairment, store closing and other costs — (108 ) (246 ) — (354 ) Operating income 2 75 893 — 970 Benefit plan income, net — 12 19 — 31 Settlement charges — (22 ) (36 ) — (58 ) Interest (expense) income, net:
External 15 (204 ) 4 — (185 ) Intercompany — (72 ) 72 — —
Losses on early retirement of debt — (30 ) — — (30 ) Equity in earnings (loss) of subsidiaries 547 (266 ) — (281 ) — Income (loss) before income taxes 564 (507 ) 952 (281 ) 728 Federal, state and local income
tax benefit (expense) — 33 (197 ) — (164 ) Net income (loss) 564 (474 ) 755 (281 ) 564 Net loss attributable to noncontrolling interest — — — — — Net income attributable to
Macy's, Inc. shareholders $ 564 $ (474 ) $ 755 $ (281 ) $ 564 Comprehensive income (loss) $ 524 $ (512 ) $ 731 $ (219 ) $ 524 Comprehensive loss attributable to
noncontrolling interest — — — — — Comprehensive income (loss) attributable to
Macy's, Inc. shareholders $ 524 $ (512 ) $ 731 $ (219 ) $ 524
F-55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC. Condensed Consolidating Statement of Comprehensive Income
For 2018 (millions)
Parent Subsidiary
Issuer Other
Subsidiaries Consolidating Adjustments Consolidated
Net sales $ — $ 9,051 $ 23,720 $ (7,800) $ 24,971 Credit card revenues (expense), net — (3 ) 771 — 768
Cost of sales — (5,786) (17,229 ) 7,800 (15,215 ) Selling, general and administrative expenses — (3,509) (5,530) — (9,039) Gains on sale of real estate — 141 248 — 389 Restructuring, impairment, store closing and other costs — (33 ) (103 ) — (136 ) Operating income (loss) — (139 ) 1,877 — 1,738 Benefit plan income, net — 15 24 — 39 Settlement charges (5 ) (30 ) (53 ) — (88 ) Interest (expense) income, net:
External 20 (260 ) 4 — (236 ) Intercompany — (72 ) 72 — —
Losses on early retirement of debt — (33 ) — — (33 ) Equity in earnings of subsidiaries 1,104 345 — (1,449) — Income (loss) before income taxes 1,119 (174 ) 1,924 (1,449) 1,420 Federal, state and local income
tax benefit (expense) (11 ) 219 (530 ) — (322 ) Net income 1,108 45 1,394 (1,449) 1,098 Net loss attributable to noncontrolling interest — — 10 — 10 Net income attributable to
Macy's, Inc. shareholders $ 1,108 $ 45 $ 1,404 $ (1,449) $ 1,108 Comprehensive income (loss) $ 1,045 $ (15 ) $ 1,353 $ (1,348) $ 1,035 Comprehensive loss attributable to
noncontrolling interest — — 10 — 10 Comprehensive income (loss) attributable to
Macy's, Inc. shareholders $ 1,045 $ (15 ) $ 1,363 $ (1,348) $ 1,045
F-56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC. Condensed Consolidating Statement of Comprehensive Income
For 2017 (millions)
Parent Subsidiary
Issuer Other
Subsidiaries Consolidating Adjustments Consolidated
Net sales $ — $ 9,490 $ 23,317 $ (7,868) $ 24,939 Credit card revenues (expense), net — (2 ) 704 — 702
Cost of sales — (6,122) (16,927 ) 7,868 (15,181 ) Selling, general and administrative expenses — (3,426) (5,528) — (8,954) Gains on sale of real estate — 201 343 — 544 Restructuring, impairment, store closing and other costs — (40 ) (146 ) — (186 ) Operating income — 101 1,763 — 1,864 Benefit plan income, net — 22 35 — 57 Settlement charges — (35 ) (70 ) — (105 ) Interest (expense) income, net:
External — (313 ) 3 — (310 ) Intercompany — (139 ) 139 — —
Gains on early retirement of debt — 10 — — 10 Equity in earnings of subsidiaries 1,574 773 — (2,347) — Income before income taxes 1,574 419 1,870 (2,347) 1,516 Federal, state and local income
tax benefit (expense) (8 ) 356 (309 ) — 39 Net income 1,566 775 1,561 (2,347) 1,555 Net loss attributable to noncontrolling interest — — 11 — 11 Net income attributable to
Macy's, Inc. shareholders $ 1,566 $ 775 $ 1,572 $ (2,347) $ 1,566 Comprehensive income $ 1,738 $ 935 $ 1,673 $ (2,619) $ 1,727 Comprehensive loss attributable to
noncontrolling interest — — 11 — 11 Comprehensive income attributable to
Macy's, Inc. shareholders $ 1,738 $ 935 $ 1,684 $ (2,619) $ 1,738
F-57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC. Condensed Consolidating Balance Sheet
As of February 1, 2020 (millions)
Parent Subsidiary
Issuer Other
Subsidiaries Consolidating Adjustments Consolidated
ASSETS: Current Assets:
Cash and cash equivalents $ 413 $ 59 $ 213 $ — $ 685 Receivables — 83 326 — 409 Merchandise inventories — 2,239 2,949 — 5,188 Prepaid expenses and other current assets — 118 410 — 528
Total Current Assets 413 2,499 3,898 — 6,810 Property and Equipment – net — 3,103 3,530 — 6,633 Right of Use Assets — 611 2,057 — 2,668 Goodwill — 3,326 582 — 3,908 Other Intangible Assets – net — 4 435 — 439 Other Assets — 37 677 — 714 Deferred Income Taxes 12 — — (12 ) — Intercompany Receivable 2,675 — 1,128 (3,803) — Investment in Subsidiaries 3,433 2,796 — (6,229) —
Total Assets $ 6,533 $ 12,376 $ 12,307 $ (10,044 ) $ 21,172 LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities: Short-term debt $ — $ 539 $ — $ — $ 539 Merchandise accounts payable — 702 980 — 1,682 Accounts payable and accrued liabilities 126 909 2,413 — 3,448 Income taxes 5 11 65 — 81
Total Current Liabilities 131 2,161 3,458 — 5,750 Long-Term Debt — 3,621 — — 3,621 Long-Term Lease Liabilities — 543 2,375 — 2,918 Intercompany Payable — 3,803 — (3,803) — Deferred Income Taxes — 595 586 (12 ) 1,169 Other Liabilities 25 414 898 — 1,337 Shareholders’ Equity:
Macy's, Inc. 6,377 1,239 4,990 (6,229) 6,377 Noncontrolling Interest — — — — —
Total Shareholders’ Equity 6,377 1,239 4,990 (6,229) 6,377 Total Liabilities and Shareholders’ Equity $ 6,533 $ 12,376 $ 12,307 $ (10,044 ) $ 21,172
F-58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC. Condensed Consolidating Balance Sheet
As of February 2, 2019 (millions)
Parent Subsidiary
Issuer Other
Subsidiaries Consolidating Adjustments Consolidated
ASSETS: Current Assets:
Cash and cash equivalents $ 889 $ 59 $ 214 $ — $ 1,162 Receivables — 68 332 — 400 Merchandise inventories — 2,342 2,921 — 5,263 Prepaid expenses and other current assets — 143 477 — 620
Total Current Assets 889 2,612 3,944 — 7,445 Property and Equipment – net — 3,287 3,350 — 6,637 Goodwill — 3,326 582 — 3,908 Other Intangible Assets – net — 38 440 — 478 Other Assets — 41 685 — 726 Deferred Income Taxes 12 — — (12 ) — Intercompany Receivable 1,713 — 1,390 (3,103) — Investment in Subsidiaries 4,030 3,119 — (7,149) —
Total Assets $ 6,644 $ 12,423 $ 10,391 $ (10,264 ) $ 19,194 LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities: Short-term debt $ — $ 42 $ 1 $ — $ 43 Merchandise accounts payable — 713 942 — 1,655 Accounts payable and accrued liabilities 170 950 2,246 — 3,366 Income taxes 14 52 102 — 168
Total Current Liabilities 184 1,757 3,291 — 5,232 Long-Term Debt — 4,692 16 — 4,708 Intercompany Payable — 3,103 — (3,103) — Deferred Income Taxes — 679 571 (12 ) 1,238 Other Liabilities 24 406 1,150 — 1,580 Shareholders’ Equity:
Macy's, Inc. 6,436 1,786 5,363 (7,149) 6,436 Noncontrolling Interest — — — — —
Total Shareholders’ Equity 6,436 1,786 5,363 (7,149) 6,436 Total Liabilities and Shareholders’ Equity $ 6,644 $ 12,423 $ 10,391 $ (10,264 ) $ 19,194
F-59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC. Condensed Consolidating Statement of Cash Flows
For 2019 (millions)
Parent Subsidiary
Issuer Other
Subsidiaries Consolidating Adjustments Consolidated
Cash flows from operating activities: Net income (loss) $ 564 $ (474 ) $ 755 $ (281 ) $ 564 Restructuring, impairment, store closing and other costs — 108 246 — 354 Settlement charges — 22 36 — 58 Gains on sale of real estate — (37 ) (125 ) — (162 ) Equity in (earnings) loss of subsidiaries (547 ) 266 — 281 — Dividends received from subsidiaries 936 — — (936 ) — Depreciation and amortization — 323 658 — 981 Changes in assets, liabilities and other items not separately
identified (4 ) (90 ) (93 ) — (187 ) Net cash provided by
operating activities 949 118 1,477 (936 ) 1,608 Cash flows from investing activities:
Purchase of property and equipment and capitalized software, net — (198 ) (774 ) — (972 )
Other, net — (2 ) (28 ) — (30 ) Net cash used by investing activities — (200 ) (802 ) — (1,002)
Cash flows from financing activities: Debt repaid, including debt issuance costs — (598 ) (2 ) — (600 ) Dividends paid (466 ) — (936 ) 936 (466 ) Issuance of common stock, net of common stock acquired 5 — — — 5 Intercompany activity, net (915 ) 687 228 — — Other, net (49 ) (7 ) (6 ) — (62 )
Net cash provided (used) by financing activities (1,425) 82 (716 ) 936 (1,123)
Net decrease in cash, cash equivalents and restricted cash (476 ) — (41 ) — (517 ) Cash, cash equivalents and restricted cash at
beginning of period 889 64 295 — 1,248 Cash, cash equivalents and restricted cash at
end of period $ 413 $ 64 $ 254 $ — $ 731
F-60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC. Condensed Consolidating Statement of Cash Flows
For 2018 (millions)
Parent Subsidiary
Issuer Other
Subsidiaries Consolidating Adjustments Consolidated
Cash flows from operating activities: Net income $ 1,108 $ 45 $ 1,394 $ (1,449) $ 1,098 Restructuring, impairment, store closing and other costs — 33 103 — 136 Settlement charges 5 30 53 — 88 Gains on sale of real estate — (141 ) (248 ) — (389 ) Equity in earnings of subsidiaries (1,104) (345 ) — 1,449 — Dividends received from subsidiaries 1,040 200 — (1,240) — Depreciation and amortization — 334 628 — 962 Changes in assets, liabilities and other items not separately
identified (91 ) 198 (266 ) (1 ) (160 ) Net cash provided by
operating activities 958 354 1,664 (1,241) 1,735 Cash flows from investing activities:
Purchase of property and equipment and capitalized software, net — (135 ) (323 ) — (458 ) Other, net — (16 ) (33 ) 51 2
Net cash used by investing activities — (151 ) (356 ) 51 (456 )
Cash flows from financing activities: Debt repaid — (1,098) (1 ) (50 ) (1,149) Dividends paid (463 ) — (1,240) 1,240 (463 ) Issuance of common stock, net of common stock acquired 45 — — — 45 Proceeds from noncontrolling interest — — 7 — 7 Intercompany activity, net (767 ) 875 (108 ) — — Other, net 7 5 4 — 16
Net cash used by financing activities (1,178) (218 ) (1,338) 1,190 (1,544) Net decrease in cash, cash equivalents and restricted cash (220 ) (15 ) (30 ) — (265 )
Cash, cash equivalents and restricted cash at beginning of period 1,109 79 325 — 1,513
Cash, cash equivalents and restricted cash at end of period $ 889 $ 64 $ 295 $ — $ 1,248
F-61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
MACY’S, INC. Condensed Consolidating Statement of Cash Flows
For 2017 (millions)
Parent Subsidiary
Issuer Other
Subsidiaries Consolidating Adjustments Consolidated
Cash flows from operating activities: Net income $ 1,566 $ 775 $ 1,561 $ (2,347) $ 1,555 Restructuring, impairment, store closing and other costs — 40 146 — 186 Settlement charges — 35 70 — 105 Gains on sale of real estate — (201 ) (343 ) — (544 ) Equity in earnings of subsidiaries (1,574) (773 ) — 2,347 — Dividends received from subsidiaries 903 450 — (1,353) — Depreciation and amortization — 354 637 — 991 Changes in assets, liabilities and other items not separately
identified 14 79 (410 ) — (317 ) Net cash provided by
operating activities 909 759 1,661 (1,353) 1,976 Cash flows from investing activities:
Disposition (purchase) of property and equipment and capitalized software, net — 68 (417 ) — (349 )
Other, net — 7 (9 ) — (2 ) Net cash provided (used) by
investing activities — 75 (426 ) — (351 ) Cash flows from financing activities:
Debt repaid — (987 ) (1 ) — (988 ) Dividends paid (461 ) — (1,353) 1,353 (461 ) Issuance of common stock, net of common stock acquired 5 — — — 5 Proceeds from noncontrolling interest — — 13 — 13 Intercompany activity, net (427 ) 249 178 — —
Other, net 145 (98 ) (62 ) — (15 ) Net cash used by
financing activities (738 ) (836 ) (1,225) 1,353 (1,446) Net increase (decrease) in cash, cash equivalents and restricted cash 171 (2 ) 10 — 179 Cash, cash equivalents and restricted cash at
beginning of period 938 81 315 — 1,334 Cash, cash equivalents and restricted cash at
end of period $ 1,109 $ 79 $ 325 $ — $ 1,513
F-62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
17. Subsequent Events In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic and the virus has continued to spread throughout the United
States. As a result of this outbreak, on March 18, 2020, the Company temporarily closed all stores and the stores will remain closed until it is safe to reopen to prioritize the health and safety of its customers, colleagues and communities. These closures include all Macy’s, Bloomingdale’s, Bluemercury, Macy’s Backstage, Bloomingdales the Outlet and Market by Macy’s stores. COVID-19 has had a negative impact on the Company's operations and financial results to date, and the full financial impact of the virus cannot be reasonably estimated at this time due to uncertainty as to its severity and duration. It is anticipated that the COVID-19 outbreak may ultimately have a material adverse impact on the Company's results of operations, financial position and cash flow in 2020. As a result, in March 2020, the Company fully drew on the $1,500 million credit facility, announced the suspension of quarterly cash dividends beginning in the second quarter of 2020, and took additional steps to reduce discretionary spending and other expenditures including a temporary furlough for the majority of its employee population. The Company's Board of Directors rescinded its authorization of any unused amounts under the Company's share repurchase program. The Company continues to monitor the situation closely and may implement further measures to provide additional financial flexibility and improve the Company's cash position and liquidity.
F-63
EXHIBIT 4.8
Description of Registrant’s Securities Registered under Section 12 of the Securities Exchange Act of 1934
Authorized Capital Stock
Macy’s, Inc. (“Macy’s”) is authorized to issue 1,125 million shares of capital stock, consisting of 1,000 million shares of common stock, par value $0.01 per share, and 125 million shares of preferred stock, par value $0.01 per share.
Macy’s common stock is registered under Section 12 of the Exchange Act.
Common Stock
Holders of Macy’s common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Upon satisfaction of Macy’s obligations to preferred stockholders, holders of Macy’s common stock may receive dividends when declared by the Macy’s board of directors. If Macy’s liquidates, dissolves or winds-up its business, holders of Macy’s common stock will share equally in the assets remaining after Macy’s pays all of its creditors and satisfies all of its obligations to preferred stockholders. Holders of Macy’s common stock have no conversion, preemptive, subscription or redemption rights. Macy’s common stock is traded on the New York Stock Exchange (NYSE) under the symbol “M.” The registrar and transfer agent for the common stock is Computershare Shareowner Services.
Preferred Stock
The Macy’s board of directors can, without approval of stockholders, issue one or more series of preferred stock. The board can determine the number of shares of each series and the rights, preferences and limitations of each series, including dividend rights, voting rights, conversion rights, redemption rights and any liquidation preferences and the terms and conditions of the issue. In some cases, the issuance of preferred stock could delay, defer or prevent a change in control of Macy’s and make it harder to remove present management, without further action by Macy’s stockholders. Under some circumstances, preferred stock could also decrease the amount of earnings and assets available for distribution to holders of Macy’s common stock if Macy’s liquidates or dissolves and could also restrict or limit dividend payments to holders of Macy’s common stock.
Macy’s has not issued any shares of preferred stock to date, and Macy’s does not plan to issue any shares of preferred stock.
Purposes and Effects of Certain Provisions of Macy’s Certificate of Incorporation and By-laws
General
Macy’s certificate of incorporation and by-laws contain provisions that could make more difficult the acquisition of control of Macy’s by means of a tender offer, open market purchases, a proxy contest or otherwise. A description of these provisions is set forth below.
Removal of Directors
Macy’s certificate of incorporation provides that, except as may be otherwise provided by the terms of any series of preferred stock, a director may only be removed at any annual or special meeting of Macy’s stockholders, the notice of which states that the removal of a director or directors is among the purposes of the meeting, by the affirmative vote of the holders of at least a majority of the voting stock present or represented by proxy at such meeting and actually voting on such matter, voted together as a single class.
Limitation of Director Liability
Macy’s certificate of incorporation provides that, to the full extent permitted by the Delaware General Corporation Law or any other applicable law currently or hereafter in effect, no director will be personally liable to Macy’s or its stockholders for or with respect to any acts or omissions in the performance of his or her duties as a director of Macy’s. This provision in Macy’s certificate of incorporation may have the effect of reducing the likelihood of derivative litigation against Macy’s directors and may discourage or deter stockholders or management from bringing a lawsuit against Macy’s directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefited Macy’s and its stockholders. These provisions do not limit or affect a stockholder’s ability to seek and obtain relief under federal securities laws.
No Stockholder Action by Written Consent
Macy’s certificate of incorporation provides that any action required or permitted to be taken by the Macy’s stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by a written consent of Macy’s stockholders. This prevents Macy’s stockholders from initiating or effecting any action by written consent, thereby limiting the ability of Macy’s stockholders to take actions opposed by Macy’s board of directors.
Special Meetings of Stockholders
Macy’s certificate of incorporation and by-laws provide that special meetings of stockholders may be called only by the chairman of the Macy’s board of directors, the secretary of Macy’s within 10 calendar days after receipt of a written request from a majority of directors (assuming no vacancies) or the Macy’s board of directors upon receipt of a written request from not less than 15% of Macy’s voting stock entitled to vote in the election of directors, voting together as a single class.
Section 203 of the Delaware General Corporation Law
Macy’s is subject to Section 203, which prohibits publicly held Delaware corporations from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time of the transaction in which the person or entity became an interested stockholder, unless:
• prior to that time, either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder is approved by the board of directors of the corporation;
• upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the outstanding voting stock of the corporation, excluding for this purpose shares owned by persons who are directors and also officers of the corporation and by specified employee benefit plans; or
• at or after such time the business combination is approved by the board of directors of the corporation and by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.
For the purposes of Section 203, a “business combination” is broadly defined to include mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns or within the immediately preceding three years did own 15% or more of the corporation’s voting stock.
EXHIBIT 10.18
MACY’S, INC. DEFERRED COMPENSATION PLAN
(Amended and restated effective as of August 1, 2018)
MACY’S, INC. DEFERRED COMPENSATION PLAN
(Amended and restated effective as of August 1, 2018)
SECTION 1
INTRODUCTION TO PLAN
1.1 Name and Sponsor of Plan. The name of this Plan is the Macy’s, Inc. Deferred Compensation Plan, and its sponsor is Macy’s.
1.2 Purpose of Plan. The purpose of the Plan is to provide deferred compensation for a select group of management and highly compensated employees of the Company.
1.3 Effective Date and Amendment of Plan. The Plan was initially effective as of January 1, 2014, and is not a continuation of any prior plan of Macy’s. The Plan was subsequently amended from time to time, and is amended and restated in its entirety as set forth herein, effective as of the date first written above.
SECTION 2
GENERAL DEFINITIONS
For all purposes of the Plan, the following terms of this section 2 shall have the meanings hereinafter set forth, unless the context clearly indicates otherwise.
2.1 “Account” means, with respect to any Participant, the bookkeeping account maintained for the Participant under the terms of this Plan and to which amounts are credited or otherwise allocated under the subsequent sections of the Plan in order to help determine the Participant’s benefits under the Plan. As is indicated elsewhere in the Plan, a Participant’s Account may be divided into subaccounts to the extent necessary to properly administer the Plan.
2.2 “Aggregate Elective Deferrals” means, with respect to any Participant and for any Plan Year, the sum of (i) the Participant’s Basic Salary and Incentive Award Payment amounts that are credited to the Participant’s Account under the Plan as of dates within such Plan Year and (ii) the Participant’s elective deferrals (as defined in Code Section 402(g)(3)) that are credited to the Participant’s account under and pursuant to the Macy’s 401(k) Plan as of dates within such Plan Year.
2.3 “Basic Salary” means, with respect to any Employee, the basic salary (not including awards, bonuses, or any other remuneration not treated by the Company as part of the Employee’s base rate of salary) payable to the Employee by the Company.
2.4 “Beneficiary” means, with respect to any Participant, the person or entity designated by the Participant, on forms furnished and in the manner prescribed by the Committee, to receive any benefit payable under the Plan after the Participant’s death. If a Participant fails to designate a beneficiary or if, for any reason, such designation is not effective, his or her “Beneficiary” shall be deemed to be his or her surviving spouse or, if none, his or her estate.
2.5 “Board” means the Board of Directors of Macy’s.
2.6 “Change in Control” means the occurrence of any of the events described in subsection 2.6(a), (b), and (c) hereof. All of such events shall be determined under and subject to all of the terms of Section 1.409A-3(i)(5) of the Treasury Regulations.
(a) A change in the ownership of Macy’s (within the meaning of Section 1.409A-3(i)(5)(v) of the Treasury Regulations). In very general terms, Section 1.409A-3(i)(5)(v) of the Treasury Regulations provides that a change in the ownership of Macy’s occurs when a person or more than one person acting as a group acquires outstanding stock of Macy’s that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of Macy’s.
(b) A change in the effective control of Macy’s (within the meaning of Section 1.409A-3(i)(5)(vi) of the Treasury Regulations). In very general terms, Section 1.409A-3(i)(5)(vi) of the Treasury Regulations provides that a change in the effective control of Macy’s occurs either:
(1) when a person or more than one person acting as a group acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of Macy’s possessing 30% or more of the total voting power of the stock of Macy’s; or
(2) when a majority of members of the Board is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election.
(c) A change in the ownership of a substantial portion of the assets of Macy’s (within the meaning of Section 1.409A-3(i)(5) (vii) of the Treasury Regulations). In very general terms, Section 1.409A-3(i)(5)(vii) of the Treasury Regulations provides that a change in the ownership of a substantial portion of the assets of Macy’s occurs when a person or more than one person acting as a group acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person or persons) assets from Macy’s that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of Macy’s immediately prior to such acquisition or acquisitions.
2.7 “Code” means the Internal Revenue Code of 1986, as it exists as of the Effective Date and as it may thereafter be amended. A reference to a specific section of the Code shall be deemed to be a reference both (i) to the provisions of such section as it exists as of the Effective Date and as it is subsequently amended, renumbered, or superseded (by future legislation) and (ii) to the provisions of any section of the Treasury Regulations that is issued under such section.
2.8 “Committee” means the committee appointed to administer the Plan under the provisions of subsection 9.1 hereof.
2.9 “Company” means all of the Employers considered collectively.
2.10 “Compensation” means, as to any Participant and with respect to any Plan Year, the amount of the Participant’s remuneration from the Company that would be considered the Participant’s “compensation” under the Macy’s 401(k) Plan for purposes of determining the Company’s “matching contributions” under and as defined in the Macy’s 401(k) Plan for such Plan Year if: (i) except to the extent otherwise noted in clause (ii), the terms of the Macy’s 401(k) Plan as in effect on the first day of such Plan Year never changed and were to apply to such Plan Year in its entirety; and (ii) the Tax-Qualified Plan Annual
Compensation Limit and the terms of the Macy’s 401(k) Plan that are intended to reflect that limit were disregarded for such Plan Year.
2.11 “Effective Date” means January 1, 2014.
2.12 “Eligible Employee” means, with respect to any Plan Year (or any other period described in subsections 3.2 or 3.3 hereof), any Employee who, pursuant to the provisions of section 3 hereof, is eligible to elect to have contributions made on his or her behalf under the Plan pursuant to the provisions of section 4 hereof for such Plan Year (or such other period).
2.13 “Employee” means any person who (i) is a common law employee of the Company (i.e., a person whose work procedures are subject to control by the Company) and paid by the Company from an employee payroll of the Company and (ii) is treated by the Company as exempt from the premium overtime pay requirements of the federal Fair Labor Standards Act of 1938, as amended.
2.14 “Employer” means each of: (i) Macy’s; and (ii) each other corporation or other organization that is deemed to be a single employer with Macy’s under Section 414(b) or (c) of the Code ( i.e., as part of a controlled group of corporations that includes Macy’s or under common control with Macy’s).
2.15 “ERISA” means the Employee Retirement Income Security Act of 1974, as it exists as of the Effective Date and as it may thereafter be amended. A reference to a specific section of ERISA shall be deemed to be a reference both (i) to the provisions of such section as it exists as of the Effective Date and as it is subsequently amended, renumbered, or superseded (by future legislation) and (ii) to the provisions of any government regulation that is issued under such section.
2.16 “Fiscal Year” means Macy’s tax year for federal income tax purposes. As of the Effective Date, the last day of the “Fiscal Year” is the Saturday that is nearest to January 31 of a calendar year.
2.17 “Incentive Award Payment” means, with respect to any Employee, any amount that becomes payable to the Employee pursuant to an award that is granted to the Employee under the Macy’s Annual Incentive Plan with respect to a Fiscal Year.
2.18 “Macy’s” means Macy’s, Inc. (and, except for purposes of determining whether a Change in Control has occurred, any legal successor to Macy’s, Inc. that results from a merger or similar transaction).
2.19 “Macy’s Annual Incentive Plan” means the incentive compensation plans that are maintained by the Company and under which annual performance-based compensation awards are made to executives of the Company, as such plans are in effect as of the Effective Date and as they may be amended or added after such date.
2.20 “Macy’s 401(k) Plan” means the Macy’s, Inc. 401(k) Retirement Investment Plan, as such plan is in effect as of the Effective Date and as it may be amended after such date. The Macy’s 401(k) Plan is intended to be a tax-qualified plan under Section 401(a) of the Code and generally permits Employees to elect to make contributions to such plan from their pay and provides for the Company to make matching contributions (contributions that are made in relation to the elective contributions of Employees) to such plan.
2.21 “Participant” means, at any time, a person who (i) is an Eligible Employee with respect to a Plan Year (or other period described in subsections 3.2 or 3.3 hereof) which has not yet ended or (ii) has amounts still allocated to an Account held for him or her under the Plan. Such a person shall remain a Participant until the first date on which he or she is not an Eligible Employee with respect to a Plan Year in
which such date occurs and any amounts that may have been allocated to his or her Account under the Plan have been fully paid and/or forfeited, as the case may be.
2.22 “Plan” means the Macy’s, Inc. Deferred Compensation Plan, as set forth in this document (and as such plan may be amended after the Effective Date).
2.23 “Plan Year” refers to the twelve month period on which Plan records are kept and means a calendar year that begins on or after the Effective Date. The first Plan Year of the Plan is the calendar year that begins on the Effective Date. The Plan Year also serves as the plan year of the Macy’s 401(k) Plan for periods that begin after December 31, 2013.
2.24 “Tax-Qualified Plan Annual Compensation Limit” means, with respect to any calendar year, the annual compensation limit that, for any plan that is subject to Code Section 401(a), applies for that plan’s plan year which begins in such calendar year under Section 401(a) (17) of the Code (as such limit is adjusted as of January 1 of such calendar year under Section 401(a)(17)(B) of the Code).
2.25 “Total Disability” or “Totally Disabled” means or refers to, with respect to any Participant, the Participant’s permanent and continuous mental or physical inability by reason of injury, disease, or condition to meet the requirements of any employment for wage or profit. A Participant shall be deemed to be disabled for purposes of the Plan only when both of the two requirements set forth in subsection 2.25(a) and (b) are met.
(a) First, a licensed physician or psychiatrist must provide to the Committee a written opinion that the Participant is totally disabled as that term is defined herein.
(b) Second, the Participant must be eligible for and receive total disability benefits under Section 223 of the federal Social Security Act, as amended, or any similar or subsequent section or act of like intent or purpose (unless the Committee determines, based on the written opinion of a licensed physician or psychiatrist provided the Committee pursuant to subsection 2.25(a) hereof, that the Participant would be likely to qualify for such total disability benefits if he or she survived a sufficient amount of time to be processed for and receive such benefits but that he or she is also likely to die before he or she would otherwise be determined by the Social Security Administration or other applicable government agency to qualify for or to receive such benefits).
2.26 “Treasury Regulations” means all final regulations issued by the U.S. Department of the Treasury under the Code, as such regulations exist as of the Effective Date and as they are subsequently amended, renumbered, or superseded. A reference to a specific section or paragraph of the Treasury Regulations shall be deemed to be a reference to the provisions of such section or paragraph as it exists as of the Effective Date and as it is subsequently amended, renumbered, or superseded.
SECTION 3
ELIGIBILITY FOR PLAN AND PLAN ACCOUNTS
3.1 General Rules of Eligibility for Plan Year . Subject to the provisions of subsection 3.3 hereof, an Employee shall be eligible to actively participate in the Plan, and hence shall be considered an “Eligible Employee” in the Plan, with respect to any Plan Year (for purposes of this subsection 3.1, the “subject Plan Year”) if he or she meets all of the following conditions:
(a) he or she has, prior to the start of the subject Plan Year, both been credited with a year of Eligibility Service (as defined in and determined under the Macy’s 401(k) Plan) and attained at least age 21;
(b) the sum of his or her annual rate of Basic Salary in effect as of the latest September 1 that precedes the start of the subject Plan Year and his or her targeted bonus under the Macy’s Annual Incentive Plan for the Fiscal Year in which such September 1 falls exceeds the Tax-Qualified Plan Annual Compensation Limit that applies to the calendar year that immediately precedes the calendar year with or in which the subject Plan Year begins;
(c) he or she is an Employee at the start of the subject Plan Year; and
(d) he or she represents to the Committee by the start of the subject Plan Year that his or her tax year for federal income tax purposes is a calendar year.
3.2 Special Rules of Eligibility for Certain Newly Eligible Participants. As a special eligibility rule, if an Employee is not eligible to participate in the Plan with respect to a Plan Year (for purposes of this subsection 3.2, the “subject Plan Year”) under the terms of subsection 3.1 hereof, but he or she meets all of the conditions set forth in subsection 3.2(a) hereof with respect to a calendar quarter that falls in the subject Plan Year (for purposes of this subsection 3.2, the “subject Plan Year quarter”), then Macy’s may in its discretion designate that the Employee shall be eligible to actively participate in the Plan, and hence shall be considered an “Eligible Employee” in the Plan, for the period (for purposes of this subsection 3.2, the “subject Plan Year period”) that begins on the first day of the subject Plan Year quarter and ends on the last day of the subject Plan Year.
(a) The conditions that must be met by the Employee with respect to the subject Plan Year quarter in order for Macy’s to designate the Employee as an Eligible Employee for the subject Plan Year period pursuant to the preceding terms of this subsection 3.2 are the following:
(1) the Employee has, prior to the start of the subject Plan Year quarter, both been credited with a year of Eligibility Service (as defined in and determined under the Macy’s 401(k) Plan) and attained at least age 21;
(2) the sum of the Employee’s annual rate of Basic Salary in effect as of the pay determination date that applies to the subject Plan Year quarter (as determined under the provisions of subsection 3.2(b) hereof) and the Employee’s targeted bonus under the Macy’s Annual Incentive Plan for the Fiscal Year in which such pay determination date falls exceeds the Tax-Qualified Plan Annual Compensation Limit that applies to the calendar year in which the subject Plan Year quarter falls;
(3) he or she is an Employee at the start of the subject Plan Year quarter;
(4) prior to the start of the subject Plan Year quarter, he or she has never been eligible to participate in the Plan (or in any other plan of the Company that is treated as a single plan with the Plan under the provisions of Section 1.409A-1(c)(2) of the Treasury Regulations); and
(5) he or she represents to the Committee by the start of the subject Plan Year quarter that his or her tax year for federal income tax purposes is a calendar year.
(b) For purposes of subsection 3.2(a)(2) hereof, the “pay determination date” that applies to the subject Plan Year quarter means a date (i) that occurs in the 90-consecutive day period that ends on the date that immediately precedes the first day of the subject Plan Year quarter and (ii) that is chosen by
Macy’s to be used for purposes of determining the Employee’s eligibility to become a Participant in the Plan.
(c) For purposes of the provisions of subsection 3.2(a)(4) hereof, if, prior to the start of the subject Plan Year quarter, the Employee had been eligible to participate in the Plan (or in any other plan of the Company that is treated as a single plan with the Plan under the provisions of Section 1.409A-1(c)(2) of the Treasury Regulations), but had ceased being eligible to participate in the Plan (and, to the extent applicable, in every such other plan), other than for an accrual of earnings and regardless of whether all amounts deferred under the Plan (and, to the extent applicable, under each such other plan) have been paid, the Employee shall be treated as being first eligible to participate in the Plan on the first day of the subject Plan Year quarter (and to have never previously been eligible to participate in any other plan of the Company that is treated as a single plan with the Plan under the provisions of Section 1.409A-1(c)(2) of the Treasury Regulations) provided that (and only if) the Employee has not been eligible to participate in the Plan (or in any such other plan), other than for the accrual of earnings, at any time in the 24-month period ending on the first day of the subject Plan Year quarter.
3.3 Special Rules of Eligibility for Certain Newly Hired or Promoted Participants.
(a) As another special eligibility rule, if an Employee is not eligible to participate in the Plan with respect to a Plan Year (for purposes of this subsection 3.3, the “subject Plan Year”) under the terms of subsection 3.1 or subsection 3.2 hereof, but he or she meets all of the conditions set forth in subsection 3.3(b) hereof, then Macy’s may in its discretion designate that the Employee shall be eligible to actively participate in the Plan, and hence shall be considered an “Eligible Employee” in the Plan, for such period (for purposes of this subsection 3.3, the “subject Plan Year period”) designated by Macy’s that begins on or after the first day of the calendar month following the Employee’s date of hire or date of promotion and ends on the last day of the subject Plan Year (or, where applicable pursuant to subsection 4.1(c)(1)(B) with respect to the Employee’s Incentive Award Payment, on the last day of the Fiscal Year that begins during the subject Plan Year).
(b) The conditions that must be met by the Employee in order for Macy’s to designate the Employee as an Eligible Employee for the subject Plan Year period pursuant to the preceding terms of this subsection 3.3 are the following:
(1) the Employee has been newly hired by an Employer or newly promoted during the subject Plan Year and at the time of hire, has attained at least age 21;
(2) the sum of the Employee’s annual rate of Basic Salary in effect as of the first day of the subject Plan Year period and the Employee’s targeted bonus under the Macy’s Annual Incentive Plan for the Fiscal Year that begins during the subject Plan Year exceeds the Tax-Qualified Plan Annual Compensation Limit that applies to the subject Plan Year;
(3) he or she is an Employee at the start of the subject Plan Year period;
(4) prior to the start of the subject Plan Year period, he or she has never been eligible to participate in the Plan (or in any other plan of the Company that is treated as a single plan with the Plan under the provisions of Section 1.409A-1(c)(2) of the Treasury Regulations); and
(5) he or she represents to the Committee by the start of the subject Plan Year period that his or her tax year for federal income tax purposes is a calendar year.
3.4 Active Participants Must Be Select Group of Management and Highly Compensated Employees and Loss of Active Participant Status. Macy’s has determined that the conditions that are required under subsections 3.1, 3.2 and 3.3 hereof to become an Eligible Employee in the Plan with respect to any Plan Year (or any other period described in subsections 3.2 or 3.3 hereof) will result in any Employee who becomes an Eligible Employee for such Plan Year (or such other period) being part of a select group of management and highly compensated employees of the Company within the meaning of Sections 201, 301, and 401 of ERISA. Notwithstanding the foregoing or any other provision of the Plan, if the Committee determines at any time that any Employee is not a part of a select group of management or highly compensated employees within the meaning of Sections 201, 301, and 401 of ERISA, he or she will not be treated as an Eligible Employee with respect to any Plan Year (or any other period described in subsections 3.2 or 3.3 hereof) that begins after such determination is made, regardless of his or her ability still to satisfy the conditions of either subsection 3.1, 3.2 or 3.3 hereof for such Plan Year (or such other period).
3.5 Accounts.
(a) An Account shall be established for each Participant in the Plan. Amounts shall be credited to a Participant’s Account in accordance with the subsequent sections of the Plan.
(b) The Committee may create subaccounts under any Participant’s Account to the extent needed administratively ( e.g., to account for different distribution rules that apply to different portions of the Participant’s Account). For instance, subaccounts may be created under a Participant’s Account so that each subaccount reflects (i) all of the amounts allocated to such Account that are payable under the same payment rules of section 7 hereof (as to, e.g., the number of annual payments and the commencement date of the payments) and (ii) none of the amounts allocated to such Account that are payable under any different payment rules.
SECTION 4
ELECTIVE DEFERRALS AND COMPANY MATCH CREDITS TO ACCOUNTS
4.1 Deferrals of Basic Salary and Incentive Award Payments.
(a) General Rules for Deferral Elections. This subsection 4.1(a) applies to any Employee who, under the provisions of subsection 3.1 hereof, is an Eligible Employee with respect to any Plan Year (for purposes of this subsection 4.1(a), the “subject Plan Year”).
(1) Subject to the other subsections of this section 4 and to such administrative rules as the Committee may prescribe, the Eligible Employee may elect for the subject Plan Year, by completing a deferral agreement or deferral agreements and filing such agreement or agreements with a Plan representative by and no later than the end of the last day of the immediately preceding Plan Year (for purposes of this subsection 4.1(a), the “deadline day”), (i) to defer the receipt of any whole percent (up to but not greater than 50%) of his or her Basic Salary that is otherwise payable to him or her for services performed in the subject Plan Year and/or (ii) to defer the receipt of any whole percent (up to but not greater than 90%) of his or her Incentive Award Payment that is otherwise payable to him or her prior to his or her separation from service with the Company (under the Company’s normal payment policies under the Macy’s Annual Incentive Plan) and for services performed in the Fiscal Year that begins within the subject Plan Year.
(2) Subject to the other subsections of this section 4 and to such administrative rules as the Committee may prescribe, the Eligible Employee may change, or terminate and thereby void, any deferral election that he or she has made for the subject Plan Year under the provisions of subsection
4.1(a)(1) hereof, by completing another appropriate agreement and filing such agreement with a Plan representative, up to but not after the end of the deadline day. At the end of the deadline day, whatever deferral elections (or lack of deferral elections) he or she then has in effect shall become irrevocable for the subject Plan Year.
(3) Notwithstanding the foregoing subparagraphs of this subsection 4.1(a), if the Employee first becomes eligible to participate in the Plan on the first day of the subject Plan Year (and if the Employee had never previously been eligible to participate in any other plan of the Company that is treated as a single plan with the Plan under the provisions of Section 1.409A-1(c)(2) of the Treasury Regulations), and if no deferral election is in effect for the Employee under the foregoing subparagraphs of this subsection 4.1(a) as of the start of the subject Plan Year, then the Employee shall still be entitled to make a deferral election in accordance with the provisions of subsection 4.1(a)(1) hereof up to but not after the 30th day after the first day of the subject Plan Year. Any such deferral election shall be irrevocable and may not be changed or terminated for the remainder of the subject Plan Year. Notwithstanding the foregoing subparagraphs of this subsection 4.1(a), if the Employee makes a deferral election under this subsection 4.1(a)(3) after the day that is the deadline day as to the subject Plan Year under the provisions of subsection 4.1(a)(1), then: (i) such deferral election, to the extent it purports to apply to Basic Salary that is otherwise payable to him or her for services performed in the subject Plan Year, shall apply only to his or her Basic Salary otherwise payable for services performed in the portion of the subject Plan Year that does not include any pay period that begins before such deferral election is filed by the Employee with a Plan representative; and (ii) such deferral election, to the extent it purports to apply to an Incentive Award Payment that is otherwise payable to him or her prior to his or her separation from service with the Company (under the Company’s normal payment policies under the Macy’s Annual Incentive Plan) and for services performed in the Fiscal Year that begins within the subject Plan Year, shall only so apply if such Fiscal Year begins after such deferral election is filed by the Employee with a Plan representative.
(4) For purposes of the provisions of subsection 4.1(a)(3) hereof, if, prior to the start of the subject Plan Year, the Employee had been eligible to participate in the Plan (or in any other plan of the Company that is treated as a single plan with the Plan under the provisions of Section 1.409A-1(c)(2) of the Treasury Regulations), but had ceased being eligible to participate in the Plan (and, to the extent applicable, in every such other plan), other than for an accrual of earnings and regardless of whether all amounts deferred under the Plan (and, to the extent applicable, under each such other plan) have been paid, the Employee shall be treated as being first eligible to participate in the Plan on the first day of the subject Plan Year (and to have never previously been eligible to participate in any other plan of the Company that is treated as a single plan with the Plan under the provisions of Section 1.409A-1(c)(2) of the Treasury Regulations) provided that (and only if) the Employee has not been eligible to participate in the Plan (or in any such other plan), other than for the accrual of earnings, at any time in the 24-month period ending on the first day of the subject Plan Year.
(b) Newly Eligible Employee Rules for Certain Deferral Elections. This subsection 4.1(b) applies to any Employee who, under the provisions of subsection 3.2 hereof, is an Eligible Employee with respect to a portion of any Plan Year (for purposes of this subsection 4.1(b), the “subject Plan Year period”).
(1) Subject to the other subsections of this section 4 and to such administrative rules as the Committee may prescribe, the Eligible Employee may elect for the subject Plan Year period, by completing a deferral agreement and filing such agreement with a Plan representative by and no later than the end of the last day of the calendar month immediately preceding the first day of the subject Plan Year period (with the last day of such preceding calendar month referred to, for purposes of this subsection 4.1(b), as his or her “deadline day”), to defer the receipt of any whole percent (up to but not greater than 50%) of
his or her Basic Salary that is otherwise payable to him or her for services performed in the subject Plan Year period.
(2) Subject to the other subsections of this section 4 and to such administrative rules as the Committee may prescribe, the Eligible Employee may change, or terminate and thereby void, any deferral election that he or she has made for the subject Plan Year period under the provisions of subsection 4.1(b)(1) hereof, by completing another appropriate agreement and filing such agreement with a Plan representative, up to but not after the end of his or her deadline day. At the end of his or her deadline day, whatever deferral election (or lack of deferral election) he or she then has in effect shall become irrevocable for the subject Plan Year period.
(3) Notwithstanding the foregoing subparagraphs of this subsection 4.1(b), if no deferral election is in effect for the Employee under the foregoing subparagraphs of this subsection 4.1(b) as of the start of the subject Plan Year period, then the Employee shall still be entitled to make a deferral election in accordance with the provisions of subsection 4.1(b)(1) hereof up to but not after the 30th day after the first day of the subject Plan Year period. Any such deferral election shall be irrevocable and may not be changed or terminated for the remainder of the subject Plan Year period. Notwithstanding the foregoing subparagraphs of this subsection 4.1(b), if the Employee makes a deferral election under this subsection 4.1(b)(3) after the day that is the deadline day as to the subject Plan Year period under the provisions of subsection 4.1(b)(1), then such deferral election shall only apply to his or her Basic Salary otherwise payable for services performed in the portion of the subject Plan Year period that does not include any pay period that begins before such deferral election is filed by the Employee with a Plan representative.
(c) Newly Hired or Promoted Employee Rules for Certain Deferral Elections. This subsection 4.1(c) applies to any Employee who, under the provisions of subsection 3.3 hereof, is an Eligible Employee with respect to a subject Plan Year period (within the meaning of subsection 3.3 hereof).
(1) Subject to the other subsections of this section 4 and to such administrative rules as the Committee may prescribe, by completing a deferral agreement and filing such agreement with a Plan representative by and no later than such date as specified by Macy’s, which shall be not later than the 30th day after the first day of the subject Plan Year period (with such date referred to, for purposes of this subsection 4.1(c), as his or her “deadline day”), the Eligible Employee may elect:
(A) To defer the receipt of any whole percent (up to but not greater than 50%) of his or her Basic Salary that is otherwise payable to him or her for services performed in the portion of the subject Plan Year period that does not include any pay period that begins before the applicable deadline day; and
(B) If and only if (i) the Eligible Employee’s date of hire occurs during the first six months of the Fiscal Year that begins during the subject Plan Year, (ii) the Eligible Employee is the Chief Executive Officer or a senior executive who reports directly to the Chief Executive Officer or President of the Company, and whose compensation is reviewed by the Compensation and Management Development Committee of the Board on a regular basis (as described in the Macy’s, Inc. Senior Executive Severance Plan), and (iii) only to the extent permitted by Macy’s in its sole discretion, to defer the receipt of any whole percent (up to but not greater than 90%) of the Incentive Award Payment (if any) that is otherwise payable to him or her prior to his or her separation from service with the Company (under the Company’s normal payment policies under the Macy’s Annual Incentive Plan) with respect to the Fiscal Year that begins during the subject Plan Year; provided, however, that any such deferral election may only apply to the portion of such Incentive Award Payment paid for services performed by the Eligible Employee after the applicable deadline day, as determined by Macy’s in its discretion.
(2) Any deferral election under this subsection 4.1(c) shall be irrevocable on the applicable deadline day and may not be changed or terminated thereafter for the remainder of the subject Plan Year period.
4.2 Company Match.
(a) Right To Company Match. For each Plan Year for which a Participant (who is an Eligible Employee with respect to such Plan Year) has any Aggregate Elective Deferrals, there shall be credited to his or her Account the amount, if any, computed in accordance with the provisions of subsection 4.2(b) hereof (which amount shall be referred to in the Plan as a “Company match”). Notwithstanding the foregoing or any other provision of this Section 4, however, in no event will any Company match be credited to the account of any Participant described in Sections 3.3 and 4.1(c) hereof, unless and until such Participant has been credited with a year of Eligibility Service (as defined in and determined under the Macy’s 401(k) Plan).
(b) Amount of Company Match. For any Plan Year in which a Company match is required to be made to a Participant’s Account pursuant to the provisions of subsection 4.2(a), the Company match to be credited to the Participant’s Account for such Plan Year shall be equal to the excess, if any, by which the amount determined under subsection 4.2(b)(1) hereof exceeds the amount determined under subsection 4.2(b)(2) hereof, where such subsections 4.2(b)(1) and 4.2(b)(2) are as follows.
(1) The amount determined under this subsection 4.2(b)(1) shall be deemed to be equal to the sum of (i) 100% of the portion of the amount of the Participant’s Aggregate Elective Deferrals for such Plan Year that does not exceed 1% of the Participant’s Compensation for such Plan Year plus (ii) 50% of the portion of the amount of the Participant’s Aggregate Elective Deferrals for such Plan Year that exceeds 1% but does not exceed 6% of the Participant’s Compensation for such Plan Year.
(2) The amount determined under this subsection 4.2(b)(2) shall be deemed to be equal to the greater of (i) the amount that the Company would have contributed for the Participant as “matching contributions” under and as defined in the Macy’s 401(k) Plan (under all of the terms of such plan as in effect at the start of such Plan Year, including its then terms that reflect limits on plans subject to Code Section 401(a), on cash or deferred arrangements described in Code Section 401(k), and on matching contributions described in Code Section 401(m), such as but not limited to the limits set forth under Code Sections 401(a)(17), 401(k)(3), 401(m)(2), and 415) with respect to such Plan Year if the Participant’s elective deferrals (as defined in Code Section 402(g)(3)) credited to the Participant’s account under and pursuant to the Macy’s 401(k) Plan as of dates within such Plan Year had been equal to the limit on such elective deferrals for such Plan Year that is provided under Code Section 402(g)(1)(A) and (B) and the Treasury Regulations issued thereunder (but with such limit determined without regard to Code Section 402(g)(1)(C) and Code Section 414(v)) or (ii) the actual amount that the Company contributes for the Participant as “matching contributions” under and as defined in the Macy’s 401(k) Plan for such Plan Year.
(c) Crediting of Company Match to Account. Subject to such rules as the Committee may prescribe, any amount of a Company match applicable to a Participant for any Plan Year under the provisions of this subsection 4.2 shall be credited to the Account of the Employee as of the 31st day of the first March that begins after such Plan Year (or, in the sole discretion of the Committee, as of any earlier day in such March).
SECTION 5
ASSUMED INVESTMENT OF AND ALLOCATION OF GAINS AND LOSSES TO ACCOUNTS
5.1 Assumed Investment of Account. Any amounts credited to the Account of a Participant under subsection 4.1 or 4.2 hereof shall be assumed to have been invested in the investments designated or deemed to be designated by the Participant on a form provided by and filed with the Committee, and adjusted by reason of such assumed investments, in accordance with the provisions of subsections 5.2, 5.3, 5.4, and 5.5 hereof.
5.2 Start of Investment of Deferred Basic Salary and Incentive Award Payment Portion of Account . Any portion of a Participant’s Account that is attributable to any deferred Basic Salary or Incentive Award Payment amount that is credited to the Participant’s Account under the provisions of subsection 4.1(c) hereof as of the day on which such deferred amount would otherwise have been paid to the Participant shall be assumed to have been invested beginning, and not before, a date that is not earlier than the day on which such amount is credited to the Account and not later than the seventh day after such crediting date and that, within such parameters, is chosen by the Committee in its discretion.
5.3 Start of Investment of Company Match Portion of Account. Any portion of a Participant’s Account that is attributable to any Company match amount made with respect to a Plan Year and that is credited to the Participant’s Account under the provisions of subsection 4.2(c) hereof as of the 31st day of the first March that begins after such Plan Year (or, in the sole discretion of the Committee, as of any earlier day in such March) shall be assumed to have been invested beginning, and not before, a date that is not earlier than the day on which such amount is credited to the Account and not later than the last day of the Plan Year in which such crediting date occurs and that, within such parameters, is chosen by the Committee in its discretion.
5.4 Assumed Investments. The Committee shall designate in notices or other documents provided to Participants a limited number of “assumed investments” for purposes of the Plan. Such assumed investments will generally be (but will not be required to be) limited to mutual funds or similar types of investments. Some or all of the assumed investments designated for the Plan may be changed by the Committee to other assumed investments, effective as of any date, in which case prior written notice of such change shall be provided by the Committee to all Participants. In no event shall any such assumed investments include an investment that is designed to invest primarily in any securities of the Company.
(a) General Rules on Participant Designations of Assumed Investments. The credits to any Participant’s Account made in accordance with section 4 hereof shall, beginning as of such dates as are determined under subsections 5.2 and 5.3 hereof, be assumed to have been invested among such assumed investments, and in such proportions, as is elected by the Participant through his or her completing an investment agreement and filing such agreement with a Plan representative, except that any investment direction of the Participant is subject to such reasonable administrative rules concerning such assumed investment directions as are adopted or used by the Committee.
(b) Initial Assumed Investment Election. The Participant must elect, before the first date a credit made to the Account established for him or her under the Plan will start to be assumed to be invested under the provisions of subsections 5.2 and 5.3 hereof, the assumed investments in which his or her Account credits are to be initially assumed to be invested and the proportions of each credit initially assumed to be invested in each designated assumed investment. Otherwise, the Participant shall be deemed to have elected that his or her Account credits will not be assumed to be invested in any investment until he or she makes an investment election under the provisions of this subsection 5.4 (or, if the Committee in its discretion so
decides, the Participant shall be deemed to have elected that his or her Account credits will be assumed to be initially invested in an investment or investments chosen by the Committee).
(c) Change in Assumed Investment Election. Further, the Participant may request a change in the assumed investments of his or her Account and the proportions of his or her new Account credits assumed to be invested in each designated investment to other assumed investments and/or proportions effective as of the first day of any Plan Year, or as of any other date as the Committee may provide in its discretion, by completing another appropriate agreement and filing such agreement with a Plan representative prior to such date (or such earlier date as may be established by the Committee).
5.5 Adjustment of Account for Assumed Investment Returns and Losses. The amounts credited to any Participant’s Account shall be adjusted as of the last day of each Plan Year, and as of such other dates as the Committee may provide in its discretion, to reflect the assumed investment gains or losses (since the last prior adjustment in the Account) that are attributable to the assumed investments in which his or her Account is deemed to be invested. For purposes of this Plan, the assumed net investment gains and losses of the assumed investments of any amount which is credited to a Participant’s Account under the Plan shall be deemed to be “attributable” to such amount (and to the portion of such Account that reflects such amount).
SECTION 6
VESTING IN ACCOUNTS
6.1 Vesting as to Basic Salary and Incentive Award Payment Deferral Credits . A Participant shall always be fully (100%) vested in the portion of his or her Account under the Plan that is attributable to the Basic Salary and Incentive Award Payment amounts that are credited to such Account under the provisions of subsection 4.1 hereof.
6.2 Vesting as to Company Match Credits.
(a) Except as is otherwise provided under subsection 6.2(b) hereof, a Participant shall be fully (100%) vested in the portion of his or her Account under the Plan that is attributable to the Company match amounts that are credited to such Account under the provisions of subsection 4.2 hereof upon (and not until) the date he or she is credited with at least two years of Vesting Service. In accordance with the terms of the immediately preceding sentence, and except as is otherwise provided under subsection 6.2(b) hereof, a Participant who separates from service with the Company prior to being credited with at least two years of Vesting Service shall have no (0%) vested interest in the amounts then credited to such portion of his or her Account and will forfeit the amounts then allocated to such Account portion. For purposes of this subsection 6.2(a), a Participant’s “Vesting Service” means the Employee’s service that is used to determine his or her vested right to a benefit under the Macy’s 401(k) Plan as such service is determined under the provisions of such plan.
(b) Notwithstanding any other provision of this section 6 to the contrary, a Participant shall be fully (100%) vested in the portion of his or her Account under the Plan that is attributable to the Company match amounts that are credited to such Account under the provisions of subsection 4.2 hereof (provided such Account portion has not previously been forfeited under the other provisions of the Plan) upon the earliest of the following: (i) the Participant’s death prior to his or her separation from service with the Company; (ii) the Participant becoming Totally Disabled prior to his or her separation from service with the Company; or (iii) the occurrence of a Change in Control of the Company prior to his or her separation from service with the Company.
6.3 Effect of Nonvested Status of Company Match Portion of Account. Any portion of an Account of a Participant that is at any time nonvested under the provisions of subsection 6.2 hereof shall not in any event, even when the provisions of section 7 hereof would otherwise permit a distribution of such Account portion at such time and notwithstanding any provision of section 7 hereof which may be read to the contrary, be able to be distributed to the Participant or any other party claiming through the Participant until such Account portion is no longer nonvested (and any distribution of such Account portion otherwise called for under section 7 hereof shall to the extent necessary be deferred until, and shall be made as of, the date such portion is no longer nonvested).
(a) References to Distributable Account Not To Include Nonvested Portion. Consistent with the rule set forth in the foregoing provisions of this subsection 6.3 and notwithstanding any other provision of section 7 hereof, any reference in any provision of section 7 hereof as to the distribution of the amounts allocated to a portion of the Account of a Participant at any time shall be deemed not to include the amounts allocated to any part of such Account portion that is then nonvested and such part shall be treated as if it were a separate class of Account until it is no longer nonvested.
(b) Forfeiture of Nonvested Portion of Account. Further, if a Participant separates from service with the Company (other than by reason of his or her death or Total Disability) when any portion of the Account established for him or her is nonvested, he or she shall never be entitled to receive the amounts allocated to such Account portion and such amounts shall be forfeited on the date he or she so separates from service with the Company.
6.4 Deduction of Forfeitures From Account. Any forfeiture of any portion of a Participant’s Account under the provisions of the Plan shall be charged, as of the date such forfeiture is deemed to be made under the other provisions of this Plan, to such Account portion (or, in other words, deducted from the amounts then allocated to such Account portion). Except as is otherwise provided under administrative policies adopted by the Committee, any such forfeiture shall be charged among all of the types of assumed investments applicable to such Account portion, on a pro rata basis.
SECTION 7
DISTRIBUTIONS
7.1 General Distribution Rules for Deferred Basic Salary. Subject to the following provisions of this section 7 and the other provisions of the Plan, this subsection 7.1 concerns the rules for payment of the portion of the Account of a Participant that is attributable to the amount of his or her Basic Salary that is otherwise payable to the Participant for services performed in any specific Plan Year but the receipt of which has been deferred by the Participant under the Plan (for purposes of subsection 7.1(a) hereof, the “subject year’s Basic Salary deferred amount”).
(a) Initial Distribution Election as to Commencement Date and Form of Payment.
(1) Subject to the provisions of subsections 7.1(a)(2), (3), and (4) and 7.1(b) hereof and the subsections of section 7 hereof that follow subsection 7.3 hereof and to such administrative rules as the Committee may prescribe, the Participant may, in the same deferral agreement by which he or she elects under the Plan to defer the receipt of the subject year’s Basic Salary deferred amount, elect that the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount shall be paid by any of the three payment methods described in subsection 7.1(a)(1)(A), (B), and (C) hereof.
(A) Payment Method 1 - Under the payment method described in this subsection 7.1(a)(1)(A) (for purposes of this subsection 7.1, “Payment Method 1”), the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount shall be paid in one lump sum payment as of the date on which the Participant separates from service with the Company (or, if the Participant is, on the date on which the Participant separates from service with the Company, a Specified Employee, as of the date immediately following the date which is six months after the date he or she separates from service with the Company).
(B) Payment Method 2 - Under the payment method described in this subsection 7.1(a)(1)(B) (for purposes of this subsection 7.1, “Payment Method 2”), the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount shall:
(x) commence to be paid as of the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company (or, if the Participant is, on the date on which the Participant separates from service with the Company, a Specified Employee, the later of the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company or the date immediately following the date which is six months after the date he or she separates from service with the Company); and
(y) be paid in one lump sum payment or in annual payments over two to fifteen years, as chosen by the Participant when he or she first elects or elected Payment Method 2 to apply to any portion of his or her Account that is attributable to an amount of the Participant’s Basic Salary the receipt of which is deferred under the Plan.
(C) Payment Method 3 - Under the payment method described in this subsection 7.1(a)(1)(C) (for purposes of this subsection 7.1, “Payment Method 3”), the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount shall:
(x) commence to be paid as of the earlier of (i) the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company (or, if the Participant is, on the date on which the Participant separates from service with the Company, a Specified Employee, the later of the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company or the date immediately following the date which is six months after the date he or she separates from service with the Company) or (ii) subject to the provisions of subsection 7.1(a)(2)(C) hereof, any fixed date (for purposes of this subsection 7.1, “a Payment Method 3 initial fixed commencement date”), as chosen by the Participant when he or she first elects Payment Method 3 to apply to the portion of his or her Account that is attributable to the subject year’s Basic Salary deferred amount; and
(y) be paid in one lump sum payment or in annual payments over two to five years, as chosen by the Participant when he or she first elects or elected Payment Method 3 with the same initial fixed commencement date to apply to any portion of his or her Account that is attributable to an amount of the Participant’s Basic Salary the receipt of which is deferred under the Plan.
(2) Notwithstanding any of the provisions of subsection 7.1(a)(1) hereof but subject to the provisions of subsection 7.1(b) hereof and the subsections of section 7 hereof that follow subsection 7.3 hereof, the following payment method election restrictions or conditions shall apply to the payment of the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount.
(A) The Participant may not elect Payment Method 1 for payment of the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount if he or she has elected (or under subsection 7.1(a)(2)(D) hereof has been deemed to have elected) Payment Method 2 for payment of the portion of the Participant’s Account that is attributable to an amount of the Participant’s Basic Salary the receipt of which was deferred under the Plan for any Plan Year that was earlier than the Plan Year with respect to which the subject year’s Basic Salary deferred amount is deferred.
(B) The Participant may not elect Payment Method 2 for payment of the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount if he or she has elected Payment Method 1 for payment of the portion of the Participant’s Account that is attributable to an amount of the Participant’s Basic Salary the receipt of which was deferred under the Plan for any Plan Year that was earlier than the Plan Year with respect to which the subject year’s Basic Salary deferred amount is deferred
. (C) The Participant may not elect Payment Method 3 for payment of the portion of the Participant’s Account
that is attributable to the subject year’s Basic Salary deferred amount unless the elected Payment Method 3 initial fixed commencement date is no earlier than the first day of the first March that begins after the end of the Plan Year in which occurs the fifth annual anniversary of the date on which the first credit of the subject year’s Basic Salary deferred amount is made to the Participant’s Account and (ii) does not cause the Participant to have more than three different Payment Method 3 initial fixed commencements dates applicable to the entire portion of his or her Account that is payable under Payment Method 3.
(D) In the event the Participant fails in the applicable deferral form to make any payment method election at all for payment of the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount and he or she has never elected (or under this subsection previously been deemed to have elected) either Payment Method 1 or Payment Method 2 for payment of the portion of the Participant’s Account that is attributable to an amount of the Participant’s Basic Salary the receipt of which was deferred under the Plan for any Plan Year that was earlier than the Plan Year with respect to which the subject year’s Basic Salary deferred amount is deferred, then he or she shall be deemed for all purposes of this subsection 7.1 to have elected Payment Method 2 (and to have chosen under such method that payment will be made in one lump sum payment) for payment of the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount.
(E) In the event the Participant fails in the applicable deferral form to make any payment method election at all for payment of the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount but he or she has elected (or under subsection 7.1(a)(2)(D) hereof has been deemed to have elected) either Payment Method 1 or Payment Method 2 for payment of the portion of the Participant’s Account that is attributable to an amount of the Participant’s Basic Salary the receipt of which was deferred under the Plan for any Plan Year that was earlier than the Plan Year with respect to which the subject year’s Basic Salary deferred amount is deferred, then he or she shall be deemed for all purposes of this subsection 7.1 to have elected the same payment method for payment of the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount.
(3) If the Participant elects to receive the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount under any payment method that provides for annual installments of two or more payments, then (i) the date as of which the first annual installment payment is to be made shall be determined under the provisions of subsection 7.1(a)(1) hereof that describe such payment method, (ii) the date as of which any annual installment payment other than the first annual installment payment is to be made shall be an annual anniversary of the date as of which the first annual
installment payment is to be made, and (iii) the amount of each installment payment shall be equal to the quotient obtained by dividing the amount allocated to the portion of the Participant’s Account that is attributable to the subject year’s Basic Salary deferred amount as of the date of such installment payment by the number of installment payments still to be made to the Participant under the applicable payment method (including the subject installment payment).
(4) Notwithstanding any of the foregoing provisions of this subsection 7.1(a), if any portion of the subject year’s Basic Salary deferred amount is credited under the terms of the Plan to the Participant’s Account as of a date that is later than the latest date as of which a payment of the subject year’s Basic Salary deferred amount is to be made under the foregoing provisions of this subsection 7.1(a), then such portion of the subject year’s Basic Salary deferred amount shall be paid as of the date as of which such portion is credited under the terms of the Plan to the Participant’s Account.
(b) Subsequent Distribution Elections as to Commencement Date and Form of Payment.
(1) If the Participant previously has elected under subsection 7.1(a) hereof to have any portion of his or her Account that is attributable to the amount of his or her Basic Salary that is earned in one or more specific Plan Years and the receipt of which has been deferred by the Participant under the Plan paid under Payment Method 1, he or she may, by completing a subsequent payment agreement and filing such agreement with a Plan representative not less than twelve months before the date on which he or she separates from service with the Company, elect to have Payment Method 1 be deemed for purposes of the Participant to be a payment method under which the entire portion of the Participant’s Account that is payable under Payment Method 1:
(A) commences to be paid as of the first day of the first March that begins after the end of the Plan Year in which occurs the fifth anniversary of the date on which the Participant separates from service with the Company; and
(B) is paid in annual payments over two to fifteen years (as chosen by the Participant when he or she elects to change the payment method represented as Payment Method 1).
However, such new election shall not become effective until at least twelve months elapse from the filing of such election with the Committee (and thus will be ineffective should the date on which the Participant separates from service with the Company occur prior to the expiration of such twelve month period).
(2) If the Participant previously has elected under subsection 7.1(a) hereof to have any portion of his or her Account that is attributable to the amount of his or her Basic Salary that is earned in one or more specific Plan Years and the receipt of which has been deferred by the Participant under the Plan paid under Payment Method 2, he or she may, by completing a subsequent payment agreement and filing such agreement with a Plan representative not less than twelve months before the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company, elect to have Payment Method 2 be deemed for purposes of the Participant to be a payment method under which the entire portion of the Participant’s Account that is payable under Payment Method 2:
(A) commences to be paid as of the first day of the first March that begins after the end of the Plan Year in which occurs the fifth anniversary of the date on which the Participant separates from service with the Company; and
(B) is paid in one lump sum payment or in annual payments over two to fifteen years (as chosen by the Participant when he or she elects to change the payment method represented
as Payment Method 2), provided that the number of annual payments to be made under the changed Payment Method 2 is different than the number of annual payments that were to be made under Payment Method 2 as in effect for the Participant before the change.
However, such new election shall not become effective until at least twelve months elapse from the filing of such election with the Committee (and thus will be ineffective should the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company occur prior to the expiration of such twelve month period).
(3) If the Participant previously has elected under subsection 7.1(a) hereof to have any portion of his or her Account that is attributable to the amount of his or her Basic Salary that is earned in one or more specific Plan Years and the receipt of which has been deferred by the Participant under the Plan paid under Payment Method 3, he or she may, by completing a subsequent payment agreement and filing such agreement with a Plan representative not less than twelve months before an applicable Payment Method 3 initial fixed commencement date, elect to have Payment Method 3 be deemed, for purposes of the entire portion of the Participant’s Account that is subject to such Payment Method 3 initial fixed commencement date, to be a payment method under which such portion:
(A) commences to be paid as of the earlier of (i) the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company (or, if the Participant is, on the date on which the Participant separates from service with the Company, a Specified Employee, the later of the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company or the date immediately following the date which is six months after the date he or she separates from service with the Company) or (ii) any fixed date that is specified by the Participant in his or her new election under this subsection 7.1(b)(3) and that is no earlier than the first day of the first March that occurs on or after the fifth annual anniversary of the applicable Payment Method 3 initial fixed commencement date; and
(B) is paid in one lump sum payment or in annual payments over two to five years (as chosen by the Participant when he or she elects to change the payment method represented as Payment Method 3 with respect to the portion of the Participant’s Account that is subject to the applicable Payment Method 3 initial fixed commencement date).
However, such new election shall not become effective until at least twelve months elapse from the filing of such election with the Committee (and thus will be ineffective should the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company occur prior to the expiration of such twelve month period).
7.2 General Distribution Rules for Deferred Incentive Award Payment. Subject to the following provisions of this section 7 and the other provisions of the Plan, this subsection 7.2 concerns the rules for payment of the portion of the Account of a Participant that is attributable to the amount of his or her Incentive Award Payment that is otherwise payable to the Participant for services performed in the Fiscal Year that begins within any specific Plan Year but the receipt of which has been deferred by the Participant under the Plan (for purposes of this subsection 7.2, the “subject year’s Incentive Award Payment deferred amount”). Payment of the subject year’s Incentive Award Payment deferred amount shall be determined pursuant to the provisions of subsection 7.1 hereof in their entirety, except that each reference to “Basic Salary” contained in subsection 7.1 hereof (including each such reference that is part of a quoted phrase) shall for purposes of this subsection 7.2 be deemed to be a reference to “Incentive Award Payment.”
7.3 General Distribution Rules for Company Match Amounts. Subject to the following provisions of this section 7 and the other provisions of the Plan, this subsection 7.3 concerns the rules for payment of the vested portion of the Account of a Participant that is attributable to the amount of the Company match amount that is credited to such Account for any specific Plan Year (for purposes of subsection 7.3 hereof, the “subject year’s Company match deferred amount”).
(a) Initial 2014 Distribution Payment Method.
(1) When the Plan Year that begins on the Effective Date is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then, subject to the provisions of subsections 7.3(a)(2) and (3) and 7.3(c) hereof and the subsections of section 7 hereof that follow this subsection 7.3 and to such administrative rules as the Committee may prescribe, the portion of the Participant’s vested Account that is attributable to the subject year’s Company match deferred amount shall be paid in accordance with the payment method described in this subsection 7.3(a)(1) (for purposes of this subsection 7.3, the “2014 Payment Method”). Under the 2014 Payment Method, such portion of the Participant’s vested Account shall:
(A) commence to be paid as of the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company (or, if the Participant is, on the date on which the Participant separates from service with the Company, a Specified Employee, the later of the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company or the date immediately following the date which is six months after the date he or she separates from service with the Company); and
(B) be paid in one lump sum payment or in annual payments over two to fifteen years, as chosen by the Participant by completing a payment agreement and filing such agreement with a Plan representative before the start of the Plan Year that begins on the Effective Date. In the event the Participant fails to complete or file such a payment agreement before the start of such Plan Year, then he or she shall be deemed for all purposes of this subsection 7.3(a)(1) to have chosen under the 2014 Payment Method that payment will be made in one lump sum payment.
(2) When the Plan Year that begins on the Effective Date is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then, if the Participant elects to receive the portion of the Participant’s vested Account that is attributable to the subject year’s Company match deferred amount in annual installments of two or more payments (under the 2014 Payment Method), then (i) the date as of which the first annual installment payment is to be made shall be determined under the provisions of subsection 7.3(a)(1)(A) hereof, (ii) the date as of which any annual installment payment other than the first annual installment payment is to be made shall be an annual anniversary of the date as of which the first annual installment payment is to be made, and (iii) the amount of each installment payment shall be equal to the quotient obtained by dividing the amount allocated to the portion of the Participant’s vested Account that is attributable to the subject year’s Company match deferred amount as of the date of such installment payment by the number of installment payments still to be made to the Participant under the applicable payment method (including the subject installment payment).
(3) When the Plan Year that begins on the Effective Date is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then, notwithstanding any of the foregoing provisions of this subsection 7.3(a), if any portion of the subject year’s Company match deferred amount is credited under the terms of the Plan to the Participant’s Account as of a date that is later than the latest date as of which a payment of such portion would otherwise be made under the foregoing provisions of this subsection 7.3(a) and the Participant is vested in such portion, such
portion shall be paid as of the date as of which such portion is credited under the terms of the Plan to the Participant’s Account.
(b) Initial Post-2014 Distribution Payment Method.
(1) When a Plan Year that begins on or after January 1, 2015 is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then, subject to the provisions of subsections 7.3(b)(2), (3), and (4) and 7.3(c) hereof and the subsections of section 7 hereof that follow this subsection 7.3 and to such administrative rules as the Committee may prescribe, the Participant may, by completing a payment agreement and filing such agreement with a Plan representative before the start of the Plan Year for which the subject year’s Company match deferred amount is credited to his or her Account under the Plan, elect that the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount shall be paid by either of the two payment methods described in subsection 7.3(b)(1)(A) and (B) hereof.
(A) Payment Method 1 - Under the payment method described in this subsection 7.3(b)(1)(A) (for purposes of this subsection 7.3, “Payment Method 1”), the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount shall be paid in one lump sum payment as of the date on which the Participant separates from service with the Company (or, if the Participant is, on the date on which the Participant separates from service with the Company, a Specified Employee, as of the date immediately following the date which is six months after the date he or she separates from service with the Company).
(B) Payment Method 2 - Under the payment method described in this subsection 7.3(b)(1)(B) (for purposes of this subsection 7.3, “Payment Method 2”), the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount shall:
(x) commence to be paid as of the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company (or, if the Participant is, on the date on which the Participant separates from service with the Company, a Specified Employee, the later of the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company or the date immediately following the date which is six months after the date he or she separates from service with the Company); and
(y) be paid in one lump sum payment or in annual payments over two to fifteen years, as chosen by the Participant when he or she elects (or under subsection 7.3(b)(2)(C) hereof is deemed to elect) Payment Method 2 to apply to the portion of his or her Account that is attributable to the amount of the Participant’s Company match deferred amount that was credited to the Participant’s Account for any Plan Year that began on or after January 1, 2015.
(2) When a Plan Year that begins on or after January 1, 2015 is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then, notwithstanding any of the provisions of subsection 7.3(b)(1) hereof but subject to the provisions of subsection 7.3(c) hereof and the subsections of section 7 hereof that follow this subsection 7.3, the following payment method election restrictions or conditions shall apply to the payment of the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount.
(A) When a Plan Year that begins on or after January 1, 2016 is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then the Participant may not elect Payment Method 1 for payment of the portion of the
Participant’s Account that is attributable to the subject year’s Company match deferred amount if he or she has elected (or under subsection 7.3(b)(2)(C) hereof has been deemed to have elected) Payment Method 2 for payment of the portion of the Participant’s Account that is attributable to the amount of the Participant’s Company match amount that was credited to the Participant’s Account for any Plan Year that both began on or after January 1, 2015 and was earlier than the Plan Year with respect to which the subject year’s Company match deferred amount is credited to the Participant’s Account.
(B) When a Plan Year that begins on or after January 1, 2016 is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then the Participant may not elect Payment Method 2 for payment of the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount if he or she has elected Payment Method 1 for payment of the portion of the Participant’s Account that is attributable to the amount of the Participant’s Company match amount that was credited to the Participant’s Account for any Plan Year that both began on or after January 1, 2015 and was earlier than the Plan Year with respect to which the subject year’s Company match deferred amount is credited to the Participant’s Account.
(C) When the Plan Year that begins on January 1, 2015 is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then, in the event the Participant fails in the applicable payment agreement to make any payment method election at all for payment of the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount, he or she shall be deemed for all purposes of this subsection 7.3 to have elected Payment Method 2 (and to have chosen under such method that payment will be made in one lump sum payment) for payment of the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount.
(D) When a Plan Year that begins on or after January 1, 2016 is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then, in the event the Participant fails in the applicable payment agreement to make any payment method election at all for payment of the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount and he or she has never elected (or under subsection 7.3(b)(2)(C) hereof been deemed to have elected) a distribution method with respect to a Company match amount credited to his or her Account under the Plan for any Plan Year that both began on or after January 1, 2015 and was earlier than the Plan Year with respect to which the subject year’s Company match deferred amount is credited to the Participant’s Account, he or she shall be deemed for all purposes of this subsection 7.3 to have elected Payment Method 2 (and to have chosen under such method that payment will be made in one lump sum payment) for payment of the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount.
(E) When a Plan Year that begins on or after January 1, 2016 is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then, in the event the Participant fails in the applicable payment agreement to make any payment method election at all for payment of the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount and he or she has elected (or under subsection 7.3(b)(2)(C) hereof has been deemed to have elected) either Payment Method 1 or Payment Method 2 for payment of the portion of the Participant’s Account that is attributable to a Company match amount that was credited to the Participant’s Account for any Plan Year that both began on or after January 1, 2015 and was earlier than the Plan Year with respect to which the subject year’s Company match deferred amount is credited to the Participant’s Account, he or she shall be deemed for all purposes of this subsection 7.3 to have elected the same payment method for payment of the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount.
(3) When a Plan Year that begins on or after January 1, 2015 is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then, if the Participant elects to receive the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount in annual installments of two or more payments (under any applicable payment method), then (i) the date as of which the first annual installment payment is to be made shall be determined under the provisions of subsection 7.3(b)(1) hereof that describe such payment method, (ii) the date as of which any annual installment payment other than the first annual installment payment is to be made shall be an annual anniversary of the date as of which the first annual installment payment is to be made, and (iii) the amount of each installment payment shall be equal to the quotient obtained by dividing the amount allocated to the portion of the Participant’s Account that is attributable to the subject year’s Company match deferred amount as of the date of such installment payment by the number of installment payments still to be made to the Participant under the applicable payment method (including the subject installment payment).
(4) When a Plan Year that begins on or after January 1, 2015 is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then, notwithstanding any of the foregoing provisions of this subsection 7.3(b), if any portion of the subject year’s Company match deferred amount is credited under the terms of the Plan to the Participant’s Account as of a date that is later than the latest date as of which a payment of such portion would otherwise be made under the foregoing provisions of this subsection 7.3(b) and the Participant is vested in such portion, such portion shall be paid as of the date as of which such portion is credited under the terms of the Plan to the Participant’s Account.
(c) Subsequent Distribution Elections as to Commencement Date and Form of Payment.
(1) If any portion of the Participant’s Account is attributable to the amount of a Company match amount that is credited to his or her Account under the Plan for the Plan Year that begins on the Effective Date and hence, pursuant to the provisions of subsection 7.3(a) hereof, paid under the 2014 Payment Method, the Participant may, by completing a subsequent payment agreement and filing such agreement with a Plan representative not less than twelve months before the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company, elect to have the 2014 Payment Method be deemed for purposes of the Participant to be a payment method under which the entire portion of the Participant’s Account that is payable under the 2014 Payment Method:
(A) commences to be paid as of the first day of the first March that begins after the end of the Plan Year in which occurs the fifth anniversary of the date on which the Participant separates from service with the Company; and
(B) is paid in one lump sum payment or in annual payments over two to fifteen years (as chosen by the Participant when he or she elects to change the payment method represented as the 2014 Payment Method), provided that the number of annual payments to be made under the changed 2014 Payment Method is different than the number of annual payments that were to be made under 2014 Payment Method as in effect for the Participant before the change.
However, such new election shall not become effective until at least twelve months elapse from the filing of such election with the Committee (and thus will be ineffective should the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company occur prior to the expiration of such twelve month period).
(2) If the Participant previously has elected under subsection 7.3(b) hereof to have any portion of his or her Account that is attributable to the amount of his or her Company match amount that is credited to his or her Account under the Plan for one or more specific Plan Years that begin on or after January 1, 2015 paid under Payment Method 1, he or she may, by completing a subsequent payment agreement and filing such agreement with a Plan representative not less than twelve months before the date on which he or she separates from service with the Company, elect to have Payment Method 1 be deemed for purposes of the Participant to be a payment method under which the entire portion of the Participant’s Account that is payable under Payment Method 1:
(A) commences to be paid as of the first day of the first March that begins after the end of the Plan Year in which occurs the fifth anniversary of the date on which the Participant separates from service with the Company; and
(B) is paid in annual payments over two to fifteen years (as chosen by the Participant when he or she elects to change the payment method represented as Payment Method 1).
However, such new election shall not become effective until at least twelve months elapse from the filing of such election with the Committee (and thus will be ineffective should the date on which the Participant separates from service with the Company occur prior to the expiration of such twelve month period).
(3) If the Participant previously has elected (or been deemed to have elected) under subsection 7.3(b) hereof to have any portion of his or her Account that is attributable to the amount of his or her Company match amount that is credited to his or her Account under the Plan for one or more specific Plan Years that begin on or after January 1, 2015 paid under Payment Method 2, he or she may, by completing a subsequent payment agreement and filing such agreement with a Plan representative not less than twelve months before the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company, elect to have Payment Method 2 be deemed for purposes of the Participant to be a payment method under which the entire portion of the Participant’s Account that is payable under Payment Method 2:
(A) commences to be paid as of the first day of the first March that begins after the end of the Plan Year in which occurs the fifth anniversary of the date on which the Participant separates from service with the Company; and
(B) is paid in one lump sum payment or in annual payments over two to fifteen years (as chosen by the Participant when he or she elects to change the payment method represented as Payment Method 2), provided that the number of annual payments to be made under the changed Payment Method 2 is different than the number of annual payments that were to be made under Payment Method 2 as in effect for the Participant before the change.
However, such new election shall not become effective until at least twelve months elapse from the filing of such election with the Committee (and thus will be ineffective should the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company occur prior to the expiration of such twelve month period).
(d) Mid-Year Entry Distribution Payment Method.
(1) Notwithstanding the foregoing provisions of this subsection 7.3 or any other provision of the Plan, with respect to a Participant who becomes newly eligible to participate in the Plan as of the first day of a calendar quarter that falls in a Plan Year under the provisions of subsection 3.2 hereof
(without regard to subsection 3.2(c) hereof) and when such Plan Year begins on or after January 1, 2015 and is the Plan Year for which the subject year’s Company match deferred amount is credited to the Participant’s Account under the Plan, then, the subject year’s Company match deferred amount shall be paid in one lump sum payment as of the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company (or, if the Participant is, on the date on which the Participant separates from service with the Company, a Specified Employee, the later of the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company or the date immediately following the date which is six months after the date he or she separates from service with the Company). The Participant may not make any subsequent change to the distribution method provided for in the immediately preceding sentence and such distribution method has no effect on the distribution rules that apply under the foregoing provisions of this subsection 7.3 to the vested portion of the Account of the Participant that is attributable to the amount of the Company match amount that is credited to his or her Account for any other Plan Year.
(2) Notwithstanding the foregoing provisions of this subsection 7.3(d) or any other provision of the Plan, if any portion of the subject year’s Company match deferred amount is credited under the terms of the Plan to the Participant’s Account as of a date that is later than the date as of which a payment of such portion would otherwise be made under the foregoing provisions of this subsection 7.3(d) and the Participant is vested in such portion, such portion shall be paid as of the date as of which such portion is credited under the terms of the Plan to the Participant’s Account.
7.4 Accelerated Distribution. The time or schedule of any payment due under the Plan shall not be accelerated excepted as permitted in regulations and administrative guidance issued under Section 409A of the Code. Consistent with the immediately preceding sentence, the following paragraphs of this subsection 7.4 apply to the distribution of certain small balances under the Plan.
(a) Accelerated Distribution of Small Amounts. Notwithstanding the provisions of subsections 7.1, 7.2, and 7.3 hereof, if the vested balance of the Participant’s entire Account is less than $15,000 as of the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company (or, if the Participant is, on the date on which the Participant separates from service with the Company, a Specified Employee, the later of the first day of the first March that begins after the end of the Plan Year in which the Participant separates from service with the Company or the date immediately following the date which is six months after the date he or she separates from service with the Company), then the vested balance of the Participant’s entire interest in the Plan shall be paid in one lump sum payment made as of such date and the Participant’s interest in the Plan shall thereupon be completely ended.
(b) Limited Cashouts Permitted. Notwithstanding any other provision of this Section 7, the Company may elect, in its sole discretion and without the Participant's consent (or the consent of the Participant’s Beneficiary, if applicable), to cash-out the balance of a Participant’s subaccounts in accordance with the provisions of this subsection 7.4(b).
(1) Cash-out of Deferred Basic Salary and Incentive Award Payment Portion of Account . The Company may elect, in its sole discretion and without the Participant’s consent (or the consent of the Participant’s Beneficiary, if applicable), to pay the portion of a Participant’s Account that is attributable to deferred Basic Salary and Incentive Award Payments in one lump sum at any time so long as (a) the Company’s exercise of discretion to cash-out such amount is evidenced in writing no later than the date of such payment; (b) the payment results in the termination and liquidation of (i) the Participant’s entire interest
in the Plan relating to Basic Salary and Incentive Award Payments and (ii) all other amounts deferred under any under other plans or arrangements and required to be aggregated with such amounts under Treasury Regulation Section 1.409A-1(c)(2); (c) the payment does not exceed the applicable dollar amount under Code Section 402(g)(1)(B); and (d) the payment does not violate the provisions of subparagraph (3) below.
(2) Cash-out of Company Match Portion of Account. The Company may elect, in its sole discretion and without the Participant’s consent (or the consent of the Participant’s Beneficiary, if applicable), to pay the vested portion of a Participant’s Account that is attributable to Company match amounts in one lump sum at any time so long as (a) the Company’s exercise of discretion to cash-out such amount is evidenced in writing no later than the date of such payment; (b) the payment results in the termination and liquidation of (i) the Participant’s entire interest in the Plan relating to Company match amounts and (ii) all other amounts deferred under any under other plans or arrangements and required to be aggregated with such Company amounts under Treasury Regulation Section 1.409A-1(c)(2); (c) the payment does not exceed the applicable dollar amount under Code Section 402(g)(1)(B); and (d) the payment does not violate the provisions of subparagraph (3) below.
(3) Application of Cashout Rules to Specified Employees. Notwithstanding subparagraphs (1) and (2) of this subsection 7.4(b), if a Participant separates from service with the Company and is a Specified Employee on his or her date of separation from service, no accelerated payment shall be made under this subsection 7.4(b) to such Participant during the period beginning on his or her date of separation from service and ending on the date that is six months after such date of separation from service, except as permitted under Treasury Regulation Section 1.409A-3(i)(2).
7.5 Specified Employees.
(a) General Rules for Specified Employee Determinations. For purposes of the provisions of subsections 7.1, 7.2, 7.3, and 7.4 hereof and all other provisions of the Plan, a Participant shall be deemed to be a “Specified Employee” on each and any day that occurs during any twelve month period that begins on an April 1 and ends on the next following March 31 (for purposes of this subsection 7.5, the “subject period”) if, and only if, (i) on any day that occurs in the twelve month period (for purposes of this subsection 7.5, the “identification period”) that ends on the latest Identification Date that precedes the start of the subject period any corporation or organization that is then an Employer or Affiliate has stock which is publicly traded on an established securities market (within the meaning of Section 1.897-1(m) of the Treasury Regulations) or otherwise and (ii) the Participant meets either the criteria set forth in subsection 7.5(a)(1) hereof or the criteria set forth in subsection 7.5(a)(2) hereof.
(1) The criteria under this subsection 7.5(a)(1) demands that the Participant both (i) is an officer of any Employer or Affiliate on any day that occurs in the identification period and (ii) he or she receives during the identification period an aggregate amount of Compensation from the Employers and Affiliates greater than $130,000 (as adjusted under Section 416(i) of the Code). For this purpose and in accordance with the terms of Code Section 416(i) and the Treasury Regulations issued under Section 416 of the Code, no more than 50 employees (or, if less, the greater of three employees or 10% of the employees) of all of the Employers and Affiliates shall be treated as officers.
(2) The criteria under this subsection 7.5(a)(2) demands that the Participant either: (i) is a 5% or more owner of any Employer or Affiliate on any day that occurs in the identification period; or (ii) both is a 1% or more owner of any Employer or Affiliate on any day that occurs in the identification period and receives during the identification period an aggregate amount of Compensation from the Employers and Affiliates greater than $150,000. For purposes of this subsection 7.5(a)(2), a Participant is
considered to own 5% or 1%, as the case may be, of any Employer or Affiliate if he or she owns (or is considered as owning within the meaning of Code Section 318, except that subparagraph (C) of Code Section 318(a)(2) shall be applied by substituting “5%” for “50%”) at least 5% or 1%, as the case may be, of either the outstanding stock or the voting power of all stock of the Employer or Affiliate (or, if the Employer or Affiliate is not a corporation, at least 5% or 1%, as the case may be, of the capital or profits interest in the Employer or Affiliate).
(b) Definitions of Terms Used in Specified Employee Determinations. For purposes of this subsection 7.5, the following terms of this subsection 7.5(b) shall have the meanings hereinafter set forth.
(1) “Affiliate” means: (i) any member of an affiliated service group, within the meaning of Section 414(m) of the Code, which includes an Employer; and (ii) each other entity required to be aggregated with an Employer under Section 414(o) of the Code.
(2) “Compensation” means, with respect to any Participant and for any specified period, the Participant’s compensation for such period that is received from the Employers and the Affiliates considered collectively and that is determined under Section 1.415(c)-(2)(a) of the Treasury Regulations, applied as if the Participant were not using any safe harbor provided in Section 1.415(c)- 2(d) of the Treasury Regulations, were not using any of the special timing rules of Section 1.415(c)-2(e) of the Treasury Regulations, and were not using any of the special rules provided in Section 1.415(c)-2(g) of the Treasury Regulations.
(3) “Identification Date” means December 31. In this regard, Macy’s has elected that December 31 serve as the identification date for purposes of determining Specified Employees in accordance with the provisions of Section 1.409A-1(i) of the Treasury Regulations.
7.6 Special In-Service Distribution for Unforeseeable Emergency. Notwithstanding any other provision of the Plan, a Participant may, by filing an appropriate form with the Committee, elect to have any portion of the amounts then allocated to his or her Account under the Plan distributed to him or her as of any date (for purposes of this subsection 7.6, the “payment date”) that occurs after such election is filed with the Committee because of an unforeseeable emergency, even if the payment date precedes the date as of which such portion of his or her Account would otherwise be paid under the foregoing provisions of this section 7. A Participant may also, by filing an appropriate form with the Committee, elect, because of an unforeseeable emergency, to cancel and void in its entirety any election that he or she has in effect under the provisions of subsection 4.1 hereof to defer the receipt of any amount of Basic Salary or Incentive Award Payment that has not yet as of the payment date become payable and free of any substantial risk of forfeiture, and any such election shall be considered a request for a distribution for purposes of this subsection 7.6 that is made on the first date any such compensation has become payable and free of any substantial risk of forfeiture.
(a) Conditions For Approval of Unforeseeable Emergency Distribution Request. Any distribution requested under this subsection 7.6 because of an unforeseeable emergency shall be granted by the Committee if, and only if, the Committee determines that the requested distribution meets all of the requirements set forth in subsection 7.6(b) and (c) hereof.
(b) Unforeseeable Emergency Reason Requirements for Distribution. Any distribution which is requested by a Participant under this subsection 7.6 because of an unforeseeable emergency must be requested by the Participant and certified by him or her to be on account of the Participant’s severe financial hardship resulting from an illness or accident of the Participant, the Participant’s spouse, or a dependent (as defined in Section 152 of the Code, without regard to Code Section 152(b)(1), (b)(2), and (d)(1)(B)) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable
circumstances as a result of events beyond the control of the Participant. The need to pay for the funeral expenses of a spouse or dependent (as defined in Section 152 of the Code, without regard to Code Section 152(b)(1), (b)(2), and (d)(1)(B)) of the Participant may also constitute an unforeseeable emergency for purposes of this subsection 7.6. Written documentation of the reason for requesting the distribution shall be required. Whether a distribution is requested on account of an unforeseeable emergency shall be determined by the Committee on the basis of all facts and circumstances. In no event shall an unforeseeable emergency for purposes of this subsection 7.6 be deemed to exist for any reason that would not constitute an unforeseeable emergency under the provisions of Section 1.409A-3(i)(3) of the Treasury Regulations.
(c) Financial Need Requirements for Distribution. Any distribution which is requested by a Participant under this subsection 7.6 because of an unforeseeable emergency must also be necessary to satisfy the need for the distribution. A distribution shall be deemed necessary to satisfy such need if, and only if, the conditions set forth in subsection 7.6(c)(1) and (2) hereof, and any other conditions imposed by the Committee in its discretion, are met.
(1) The Participant certifies and provides written evidence that the distribution is not in excess of the amount of the financial need of the Participant which has caused the Participant to request the distribution (taking into account, if applicable, any additional compensation that will become payable to the Participant by his or her canceling deferral elections under this Plan in accordance with the second sentence of this subsection 7.6). The amount of financial need of the Participant may include an amount permitted by the Committee to cover federal, state, local, or foreign taxes which can reasonably be anticipated to result to the Participant from the distribution.
(2) The Participant certifies and provides written evidence (including, when applicable, a financial statement) that he or she cannot relieve his or her need for the distribution through reimbursement or compensation by insurance or otherwise, by liquidation of the Participant’s assets, or by cessation of deferrals under this Plan and other deferred compensation plans of the Company. For purposes hereof, the Participant’s assets are deemed to include those assets of the Participant’s spouse and minor children that are reasonably available to the Participant.
(d) Limitation Applicable to Specified Employees. Notwithstanding any of the foregoing provisions of this subsection 7.6, if (i) a Participant elects a distribution under this subsection 7.6 by reason of an unforeseeable emergency, (ii) the date on which the Participant separates from service with the Company precedes the date on which he or she makes such unforeseeable emergency distribution election under this subsection 7.6, (iii) the Participant is a Specified Employee on such separation from service date (as determined under the provisions of subsection 7.5 hereof), and (iv) the Participant elects a payment date under this subsection 7.6 that is earlier than the date immediately following the date which is six months after such separation from service date, then the Participant shall be deemed to have elected that such payment date shall be the date immediately following the date which is six months after such separation from service date.
7.7 Plan Payments Upon Participant’s Death.
(a) General Rules for Payments Upon Participant’s Death . If, with respect to any portion of a Participant’s Account, the Participant dies before the complete payment of the Participant’s Account (whether the Participant’s death occurs before any amounts allocated to such Account portion have begun to be paid under subsection 7.1, 7.2, or 7.3 hereof or on or after the date as of which any amounts allocated to such Account portion have begun to be paid under subsection 7.1, 7.2, or 7.3 hereof), then the Company shall make to the Participant’s Beneficiary all payments of the amounts allocated to such Account portion that would have been paid to the Participant after his or her death under the other provisions of subsections
7.1, 7.2, and 7.3 hereof had he or she not died (but had separated from service with the Company no later than his or her date of death) and at the same times and on the same schedules that would have applied had the Participant not died.
(b) Credits After Participant’s Death . Notwithstanding any of the foregoing provisions of this subsection 7.7, if any amount is credited to a Participant’s Account under the terms of the Plan as of a date that is both after the Participant’s death and after the latest date as of which a payment of the Participant’s Account is to be made under the foregoing provisions of this subsection 7.7, then, in the event the Participant is vested in the portion of his or her Account that reflects such amount, such amount shall be paid to the Participant’s Beneficiary as of the date as of which such amount is credited under the terms of the Plan to the Participant’s Account.
7.8 Cash Form of Payment. Any payment made under the Plan to a Participant (or a Participant’s Beneficiary) shall be made in cash.
7.9 Distributions for Payment of Taxes.
(a) Distribution for FICA and Related Income Taxes.
(1) Notwithstanding any other provision of the Plan, the Company shall have the right (without notice to or approval by a Participant, his or her Beneficiary, or any other person) to pay the Federal Insurance Contributions Act (for purposes of this subsection 7.9(a), “FICA”) tax imposed under Code Sections 3101, 3121(a), and 3121(v)(2) on compensation deferred under the Plan with respect to the Participant (for purposes of this subsection 7.9(a), the “FICA amount”), plus (i) any income tax at source on wages imposed under Code Section 3401 or the corresponding withholding provisions of applicable state, local, or foreign tax laws as a result of the payment of the FICA amount and (ii) any additional income tax at source on wages attributable to the pyramiding Code Section 3401 wages and taxes, from the compensation deferred under the Plan with respect to the Participant (or from any amounts otherwise payable by the Company to or on account of the Participant).
(2) However, notwithstanding the foregoing, the total payment that is taken under the provisions of this subsection 7.9(a) from the compensation deferred under the Plan for the Participant must not exceed the aggregate of the FICA amount and the income tax withholding related to the FICA amount.
(3) Also, to the extent payments made in accordance with the provisions of this subsection 7.9(a) are satisfied from the compensation deferred under the Plan for the Participant, then the balance in the Participant’s Account shall immediately be reduced by the amount of such payments and the amount of such payments shall be deemed a distribution to the Participant, his or her Beneficiary, or such other person, as the case may be.
(b) Distributions for Benefit Payment Tax Withholding Requirements . Also notwithstanding any other provision of the Plan, the Company shall have the right (without notice to or approval by a Participant, his or her Beneficiary, or any other person) to withhold from any amounts otherwise payable by the Company to or on account of the Participant, or from any payment otherwise then being made by the Company to the Participant, his or her Beneficiary, or any other person by reason of the Plan, an amount which the Company determines is sufficient to satisfy all federal, state, local, and foreign tax withholding requirements that may apply with respect to such benefit payment made under the Plan. To the extent such tax withholding requirements are satisfied from any payment otherwise then being made by the Company to the Participant, his or her Beneficiary, or any other person by reason of the Plan, the amount so
withheld shall be deemed a distribution to the Participant, his or her Beneficiary, or such other person, as the case may be.
7.10 Administrative Period To Make Payments.
(1) The other provisions of this section 7 provide that any payment that is made under the Plan shall occur “as of” a specific date and sometimes refer to such a date as a “commencement date” or a “payment date.”
(2) However, in accordance with the provisions of Section 1.409A-3(d) of the Treasury Regulations and in order to permit a reasonable administrative period for the Company to make payments required under the Plan, and notwithstanding any other provision of this section 7 or any other provision of the Plan, any payment that is made under the Plan to or with respect to a Participant may be made (and shall still be deemed to have been made as of the specific date as of which it is to be paid under the other provisions of the Plan as long as it is made) within the 60 consecutive day period that begins on such specified date. The Company alone shall have the discretion to determine, within such 60 day period, the date as of which the payment is actually made.
7.11 Employer To Make Payment . Any payment with respect to a Participant’s Account shall be the liability of and made by each Employer to the extent that such payment is attributable to the credits made under section 4 hereof that relate to or arise from service of the Participant as an Employee for that entity. The determination of any Employer’s liability for any benefit payment under the Plan to a Participant shall be made by the Committee.
7.12 Facility of Payment. Any amounts payable hereunder to any person who is under legal disability or who, in the judgment of the Committee, is unable to properly manage the person’s financial affairs may be paid to the legal representative of such person or may be applied for the benefit of such person in any manner which the Committee may select, and any such payment shall be deemed to be payment for such person’s account and shall be a complete discharge of all liability of the applicable Employer with respect to the amount so paid.
7.13 Deduction of Payments From Account. Any payment, including an annual installment payment, of any portion of a Participant’s Account under the provisions of the Plan shall be charged, as of the date such payment is deemed to be made under the other provisions of this Plan, to such Account portion (or, in other words, deducted from the amounts then allocated to such Account portion). Except as is otherwise provided under administrative policies adopted by the Committee, any such payment shall be charged among all of the types of assumed investments applicable to such Account portion, on a pro rata basis.
SECTION 8
ADDITIONAL MAINTENANCE OF ACCOUNT RULES
8.1 Valuation. The balance of the Account of a Participant shall be determined periodically (under procedures adopted by the Committee) to reflect all amounts credited to the Account under the provisions of section 4 hereof since the latest preceding date on which the Account balance was determined, any assumed net investment gains and losses in the value of the Account’s assumed investments under the provisions of section 5 hereof since the latest date on which the Account balance was determined, and any forfeitures or payments under the provisions of sections 6 and 7 hereof since the latest preceding date on which the Account balance was determined.
8.2 Account Statements. As soon as practical following the end of each Plan Year, each Participant (or, in the event of his or her death, his or her Beneficiary) shall be furnished a statement as of the last day of such Plan Year showing the balance of the Participant’s Account, the total increases and reductions made in the balance of such Account during such Plan Year, and, if amounts allocated to such Account are assumed to have been invested in securities, a description of such securities including the number of shares assumed to have been purchased by the amounts allocated to such Account.
8.3 Account Balance. For purposes of the Plan, the amounts allocated to the Account of a Participant (i.e., the balance of such Account) at any specific time shall be deemed to be the net sum of amounts credited, charged, or otherwise allocated to such Account at such time under the other provisions of the Plan.
8.4 Cancellation of Account. The Account of a Participant shall be cancelled, and the amount then allocated to such Account shall be reduced to zero, on the date as of which the entire amount allocated to the Account at such time is deemed to be paid to the Participant (or his or her Beneficiary under this Plan) and/or forfeited under the other provisions of the Plan.
SECTION 9
ADMINISTRATION OF PLAN
9.1 Administrator of Plan. Macy’s shall be the administrator of the Plan. However, the Plan shall be administered on behalf of Macy’s by the Committee. The Committee shall be the Pension and Profit Sharing Committee of Macy’s, unless and until the Board appoints a different committee to administer the Plan.
9.2 Powers of Committee. The Committee, in connection with administering the Plan, is authorized to make such rules and regulations as it may deem necessary to carry out the provisions of the Plan and is given complete discretionary authority to determine any person’s eligibility for benefits under the Plan, to construe the terms of the Plan, and to decide any other matters pertaining to the Plan’s administration. The Committee shall determine any question arising in the administration, interpretation, and application of the Plan, which determination shall be binding and conclusive on all persons (subject only to the claims and appeal procedure provisions of subsection 9.7 hereof). The Committee may correct errors, however arising, and, as far as possible, adjust any benefit payments accordingly.
9.3 Actions of Committee.
(a) Manner of Acting as Committee. The Committee shall act by a majority of its members at the time in office, and any such action may be taken either by a vote at a meeting or in writing without a meeting. The Committee may by such majority action authorize any one or more of its members or any agent of it to execute any document or documents or to take any other action, including the exercise of discretion, on behalf of the Committee.
(b) Appointment of Agents. The Committee may appoint or employ such counsel, auditors, physicians, clerical help, actuaries, and/or any other agents as in the Committee’s judgment may seem reasonable or necessary for the proper administration of the Plan, and any agent it so employs may carry out any of the responsibilities of the Committee that are delegated to him or her with the same effect as if the Committee had acted directly. The Committee may provide for the allocation of responsibilities for the operation of the Plan.
(c) Conflict of Interest of Committee Member. Any member of the Committee who is also a Participant in the Plan shall not participate in any meeting, discussion, or action of the Committee that specifically concerns his or her own situation.
9.4 Compensation of Committee and Payment of Administrative Expenses. The members of the Committee shall not receive any extra or special compensation for serving as the administrative committee with respect to the Plan and, except as required by law, no bond or other security need be required of them in such capacity in any jurisdiction. All expenses of the administration of the Plan shall be paid by the Company.
9.5 Limits on Liability. The Company shall hold each member of the Committee harmless from any and all claims, losses, damages, expenses, and liabilities arising from any act or omission of the member under or relating to the Plan, other than any expenses or liabilities resulting from the member’s own gross negligence or willful misconduct. The foregoing right of indemnification shall be in addition to any other rights to which the members of the Committee may be entitled as a matter of law.
9.6 Methods for Making Deferral or Other Agreement. The Committee may adopt procedures so that any deferral or other agreement that may be entered into by a Participant under the Plan may be made through (i) a written form prepared or approved for this purpose by the Committee and filed with a Plan representative, (ii) a communication to a Plan representative under a telephonic or electronic system approved by the Committee, or (iii) under any other method approved by the Committee, with the specific method or methods to be used to be chosen in its discretion by the Committee. The Committee may choose different methods to apply to Participants in different situations (e.g., requiring a written form to be used for new Participants but a telephonic or electronic system to be used for other Participants). Regardless of what agreement method is to be used for a Participant, if the Participant properly enters into an agreement applicable to the Plan or amends such an agreement under the method for doing so which applies to him or her and the type of election he or she is making, for all other provisions of the Plan he or she will be deemed to have “filed” with a Plan representative such agreement or amendment on the day he or she completes all steps required by such method to enter into such agreement or amendment.
9.7 Claims Procedures.
(a) Initial Claim. If a Participant, a Participant’s Beneficiary, or any other person claiming through a Participant has a dispute as to the failure of the Plan to pay or provide a benefit, as to the amount of Plan benefit paid, or as to any other matter involving the Plan, the person may file a claim for the benefit or relief believed by the person to be due. Such claim must be provided by written notice to the Committee. The Committee shall decide any claims made pursuant to this subsection 9.7.
(b) Rules If Initial Claim Is Denied. If a claim made pursuant to subsection 9.7(a) hereof is denied, in whole or in part, the Committee shall generally furnish notice of the denial in writing to the claimant within 90 days (or, if a Participant’s disability is material to the claim, 45 days) after receipt of the claim by the Committee; except that if special circumstances require an extension of time for processing the claim, the period in which the Committee is to furnish the claimant written notice of the denial shall be extended for up to an additional 90 days (or, if a Participant’s disability is material to the claim, 30 days), and the Committee shall provide the claimant within the initial 90‑day (or 45-day) period a written notice indicating the reasons for the extension and the date by which the Committee expects to render the final decision.
(c) Final Denial Notice. If a claim made pursuant to subsection 9.7(a) hereof is denied, in whole or in part, the final notice of denial shall be written in a manner designed to be understood by the
claimant and set forth (i) the specific reasons for the denial, (ii) specific reference to pertinent Plan provisions on which the denial is based, (iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and (iv) information as to the steps to be taken if the claimant wishes to appeal such denial of his or her claim, including the time limits applicable to making a request for an appeal and, in the event the claim is one for benefits under the Plan, a statement of the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on appeal.
(d) Appeal of Denied Claim. Any claimant who has a claim denied under subsection 9.7(a), (b), and (c) hereof may appeal the denied claim to the Committee. Such an appeal must, in order to be considered, be filed by written notice to the Committee within 60 days (or, if a Participant’s disability is material to the claim, 180 days) of the receipt by the claimant of a written notice of the denial of his or her initial claim.
(1) If any appeal is filed in accordance with such rules, the claimant (i) shall be given, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant to the claim and (ii) shall be provided the opportunity to submit written comments, documents, records, and other information relating to the claim.
(2) A formal hearing may be allowed in its discretion by the Committee but is not required.
(e) Appeal Process. Upon any appeal of a denied claim, the Committee shall provide a full and fair review of the subject claim, taking into account all comments, documents, records, and other information submitted by the claimant (without regard to whether such information was submitted or considered in the initial benefit determination of the claim), and generally decide the appeal within 60 days (or, if a Participant’s disability is material to the claim, 45 days) after the filing of the appeal; except that if special circumstances require an extension of time for processing the appeal, the period in which the appeal is to be decided may be extended for up to an additional 60 days (or, if a Participant’s disability is material to the claim, 45 days) and the Committee shall provide the claimant written notice of the extension prior to the end of the initial period. However, if the decision on the appeal is extended due to the claimant’s failure to submit information necessary to decide the appeal, the period for making the decision on the appeal shall be tolled from the date on which the notification of the extension is sent until the date on which the claimant responds to the request for additional information.
(f) Appeal Decision Notice If Appeal Is Denied . If an appeal of a denied claim is denied, the decision on appeal shall (i) be set forth in a writing designed to be understood by the claimant, (ii) specify the reasons for the decision and references to pertinent provisions of this Plan on which the decision is based, and (iii) contain statements that the claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records, and other information relevant to the claim and, in the event the appeal involves a claim for benefits under the Plan, of the claimant’s right to bring a civil action under Section 502(a) of ERISA. The decision on appeal shall generally be furnished to the claimant by the Committee within the applicable appeal period that is described above.
(g) Special Disability Claims and Appeal Rules. In the event a Participant’s disability is material to a claim or an appeal of a denied claim made under this subsection 9.7, the following provisions of this subsection 9.7(g) shall also apply to such claim or appeal, notwithstanding any other provisions set forth in this subsection 9.7.
(1) If a Participant’s disability is material to a claim or an appeal of a denied claim made under this subsection 9.7, then the written notice as to any denial of the initial claim or the appeal, as appropriate, shall to the extent applicable include the information described in subsection 9.7(g)(1)(A) and (B) hereof.
(A) If an internal rule, guideline, protocol, or other similar criterion (for purposes of this subsection 9.7(g)(1) (A) and collectively, a “rule”) was relied upon in making an adverse determination on the initial claim or on the appeal, then the applicable written notice (as to the denial of the initial claim or the appeal) shall contain either the specific rule or a statement that such rule was relied upon in making the adverse determination or the decision and that a copy of that rule will be provided to the claimant free of charge upon request.
(B) In addition, if an adverse determination on the initial claim or on the appeal is based on a medical necessity or experimental treatment or similar exclusion or limit, then the applicable written notice (as to the denial of the initial claim or as to the decision on the appeal) shall contain either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Participant’s medical circumstances, or a statement that such explanation will be provided to the claimant free of charge upon request.
(2) Further, if a Participant’s disability is material to an appeal of a denied claim made under this subsection 9.7, then:
(A) the claim shall be reviewed on the appeal without deference to the initial adverse benefit determination and the review shall be conducted by an appropriate fiduciary of the Plan who is neither the individual who made the initial adverse benefit determination that is the subject of the appeal nor the subordinate of such individual;
(B) in the event the initial adverse benefit determination was based in whole or part on medical judgment, an appropriate Plan fiduciary shall, in considering such medical judgment under the appeal, consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment (and who is neither an individual who was consulted in connection with the initial adverse benefit determination that is the subject of the appeal nor the subordinate of any such individual); and
(C) any medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the initial adverse benefit determination shall be identified, without regard to whether the advice was relied upon in making the benefit determination.
(h) Miscellaneous Claims Procedure Rules. A claimant may appoint a representative to act on his or her behalf in making or pursuing a claim or an appeal of a claim. In addition, the Committee may prescribe additional rules which are consistent with the other provisions of this subsection 9.7 in order to carry out the claim procedures of this Plan.
SECTION 10
FUNDING OBLIGATION
10.1 General Rule for Source of Benefits. Except as is otherwise provided herein, any payment of any benefit provided under the Plan to or on account of a Participant shall be made from the general assets of the Employer or Employers which are liable for such payment (under the provisions of subsection 7.11
hereof). Notwithstanding any other provision of the Plan, neither the Participant, his or her Beneficiary, nor any other person claiming through the Participant shall have any right or claim to any payment of the benefit to be provided pursuant to the Plan which in any manner whatsoever is superior to or different from the right or claim of a general and unsecured creditor of such Employer or Employers.
10.2 “Rabbi” Trust. Notwithstanding the provisions of subsection 10.1 hereof, Macy’s may, in its sole and absolute discretion, establish a trust (for purposes of this subsection 10.2, the “Trust”) to which contributions may be made by an Employer in order to fund the Employer’s obligations under the Plan. If, and only if, Macy’s exercises its discretion to establish a Trust, the following paragraphs of this subsection 10.2 shall apply (notwithstanding any other provision of the Plan).
(a) Grantor Trust Requirement . The part of the Trust attributable to any Employer’s contributions to the Trust (for purposes of this subsection 10.2, such Employer’s “Trust account”) shall be a “grantor” trust under the Code, in that such Employer shall be treated as the grantor of such Employer’s Trust account within the meaning of subpart E, part I, subchapter J, chapter 1, subtitle A of the Code.
(b) Creditors Rights Under Trust When Employer Insolvent . Any Employer’s Trust account shall be subject to the claims of such Employer’s creditors in the event of such Employer’s insolvency. For purposes hereof, an Employer shall be considered “insolvent” if either (i) such Employer is unable to pay its debts as they become due or (ii) such Employer is subject to a pending proceeding as a debtor under the United States Bankruptcy Code.
(c) Contributions To Trust . Except as may otherwise be required by the terms of the Trust itself, an Employer may make contributions to its Trust account for the purposes of meeting its obligations under the Plan at any time, and in such amounts, as such Employer determines in its discretion.
(d) Payments From Trust. Any payment otherwise required to be made by an Employer under the Plan shall be made by such Employer’s Trust account instead of such Employer in the event that such Employer fails to make such payment directly and such Employer’s Trust account then has sufficient assets to make such payment, provided that such Employer is not then insolvent. If such Employer becomes insolvent, however, then all assets of such Employer’s Trust account shall be held for the benefit of such Employer’s creditors and payments from such Employer’s Trust account shall cease or not begin, as the case may be.
(e) Remaining Liability of Employer. Unless and except to the extent any payment required to be made pursuant to the Plan by an Employer is made by such Employer’s Trust account, the obligation to make such payment remains exclusively that of such Employer.
(f) Terms of Trust Incorporated . The terms of the Trust are hereby incorporated by reference into the Plan. To the extent the terms of the Plan conflict with the terms of the Trust, the terms of the Trust shall control.
SECTION 11
AMENDMENT AND TERMINATION OF PLAN
11.1 Right and Procedure to Terminate Plan. Macy’s reserves the right to terminate the Plan in its entirety.
(a) Procedure To Terminate Plan . The procedure for Macy’s to terminate the Plan in its entirety is as follows. In order to completely terminate the Plan, the Board shall adopt resolutions, pursuant and subject to the regulations or by-laws of Macy’s and any applicable law, and either at a duly called meeting of the Board or by a written consent in lieu of a meeting, to terminate the Plan. Such resolutions shall set forth therein the effective date of the Plan’s termination.
(b) Effect of Termination of Plan. In the event the Board adopts resolutions completely terminating the Plan, no further benefits may be paid after the effective date of the Plan’s termination. Notwithstanding the foregoing, the Plan’s termination shall not affect the payment (in accordance with the provisions of the Plan) of the Plan’s benefits attributable to compensation the deferral of which (i) has already been elected by a Participant or otherwise required under the terms of this Plan, and (ii) cannot still be voided by the Participant’s election or otherwise under the terms of Sections 1.409A-1 through 1.409A-6 of the Treasury Regulations, by the later of the effective date of the Plan’s termination or the date such resolutions terminating the Plan are adopted.
11.2 Amendment of Plan. Subject to the other provisions of this subsection 11.2, Macy’s may amend the Plan at any time and from time to time in any respect; provided that no such amendment shall decrease the benefits attributable to compensation the deferral of which (i) has already been elected by a Participant or otherwise required under the terms of this Plan, and (ii) cannot still be voided by the Participant’s election or otherwise under the terms of Sections 1.409A-1 through 1.409A-6 of the Treasury Regulations, by the later of the effective date of the amendment or the date the amendment is adopted.
(a) Procedure To Amend Plan . Subject to the provisions of subsection 11.2(b) hereof, in order to amend the Plan, the Board shall adopt resolutions, pursuant and subject to the regulations or by-laws of Macy’s and any applicable law, and either at a duly called meeting of the Board or by a written consent in lieu of a meeting, to amend the Plan. Such resolutions shall either (i) set forth the express terms of the Plan amendment or (ii) simply set forth the nature of the amendment and direct an officer of Macy’s to have prepared and to sign on behalf of Macy’s the formal amendment to the Plan. In the latter case, such officer shall have prepared and shall sign on behalf of Macy’s an amendment to the Plan which is in accordance with such resolutions.
(b) Alternative Procedure To Amend Plan . In addition to the procedure for amending the Plan set forth in subsection 11.2(a) hereof, the Board may also adopt resolutions, pursuant and subject to the regulations or by-laws of Macy’s and any applicable law, and either at a duly called meeting of the Board or by a written consent in lieu of a meeting, to delegate to any officer of Macy’s or to the Committee the authority to amend the Plan.
(1) Such resolutions may either grant the officer or the Committee broad authority to amend the Plan in any manner the officer or the Committee deems necessary or advisable or may limit the scope of amendments he, she, or it may adopt, such as by limiting such amendments to matters related to the administration of the Plan. In the event of any such delegation to amend the Plan, the officer or the Committee to whom or which authority is delegated shall amend the Plan by having prepared and signed on behalf of Macy’s an amendment to the Plan which is within the scope of amendments which he, she, or it has authority to adopt. Also, any such delegation to amend the Plan may be terminated at any time by later resolutions adopted by the Board.
(2) In the event of any such delegation to amend the Plan, and even while such delegation remains in effect, the Board shall continue to retain its own right to amend the Plan pursuant to the procedure set forth in subsection 11.2(a) hereof.
SECTION 12
MISCELLANEOUS
12.1 Delegation. Except as is otherwise provided in sections 9 and 11 hereof, any matter or thing to be done by Macy’s shall be done by its Board, except that, from time to time, the Board by resolution may delegate to any person or committee certain of its rights and duties hereunder. Any such delegation shall be valid and binding on all persons, and the person or committee to whom or which authority is delegated shall have full power to act in all matters so delegated until the authority expires by its terms or is revoked by the Board, as the case may be.
12.2 Non-Alienation of Benefits. Except to the extent required by applicable law, no Participant or Beneficiary may alienate, commute, anticipate, assign, pledge, encumber, transfer, or dispose of the right to receive the payments required to be made by the Company hereunder, which payments and the right to receive them are expressly declared to be nonassignable and nontransferable. In the event of any attempt to alienate, commute, anticipate, assign, pledge, encumber, transfer, or dispose of the right to receive the payments required to be made by the Company hereunder, the Company shall have no further obligation to make any payments otherwise required of it hereunder (except to the extent required by applicable law).
12.3 No Spousal Rights. Nothing contained in the Plan shall give any spouse or former spouse of a Participant any right to benefits under the Plan of the types described in Code Sections 401(a)(11) and 417 (relating to qualified preretirement survivor annuities and qualified joint and survivor annuities).
12.4 Separation From Service. For all purposes of the Plan, a Participant shall be deemed to have separated from service with the Company on the date he or she dies, retires, or otherwise has a separation from service with the Company’s controlled group. The following provisions of this subsection 12.4 shall apply in determining when a Participant has incurred a separation from service with the Company’s controlled group.
(a) Effect of Leave of Service. The Participant’s service with the Company’s controlled group shall be treated as continuing intact while the Participant is on military leave, sick leave, or other bona fide leave of absence where there is a reasonable expectation that the Participant will return to perform services for the Company’s controlled group (but not beyond the later of the date on which the leave has lasted for six months or the date on which the Participant no longer retains a right of reemployment with the Company’s controlled group under an applicable statute or by contract).
(b) Determination of Separation From Service. For purposes of the Plan, a separation from service of the Participant with the Company’s controlled group as of any date shall be determined to have occurred when, under all facts and circumstances, either (i) no further services will be performed by the Participant for the Company’s controlled group after such date or (ii) the level of bona fide services the Participant will perform for the Company’s controlled group after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than 20% of the average level of bona fide services performed (whether as an employee or as an independent contractor) by the Participant for the Company’s controlled group over the immediately preceding 36-month period (or the full period of the Participant’s service for the Company’s controlled group if such period has been less than 36 months).
(c) Controlled Group Definition. For purposes of this subsection 12.4, the “Company’s controlled group” means, collectively, (i) each Employer and (ii) each other corporation or other organization that is deemed to be a single employer with an Employer under Section 414(b) or (c) of the Code (i.e., as part of a controlled group of corporations that includes an Employer or under common control with an
Employer), provided that such Code sections will be applied and interpreted by substituting “at least 50 percent” for each reference to “at least 80 percent” that is contained in Code Section 1563(a)(1), (2), and (3) and in Section 1.414(c)-2 of the Treasury Regulations.
12.5 No Effect On Employment. The Plan is not a contract of employment, and the terms of employment of any Participant shall not be affected in any way by the Plan except as specifically provided in the Plan. The establishment of the Plan shall not be construed as conferring any legal rights upon any Participant for a continuation of employment, nor shall it interfere with the right of the Company to discharge any Employee and to treat him or her without regard to the effect which such treatment might have upon him or her as a Participant in the Plan. Each Participant (and any Beneficiary of or other person claiming through the Participant) who may have or claim any right under the Plan shall be bound by the terms of the Plan.
12.6 Applicable Law. The Plan shall be governed by applicable federal law and, to the extent not preempted by applicable federal law, the laws of the State of Ohio.
12.7 Separability of Provisions. If any provision of the Plan is held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, and the Plan shall be construed and enforced as if such provision had not been included.
12.8 Headings. Headings used throughout the Plan are for convenience only and shall not be given legal significance.
12.9 Counterparts. The Plan may be executed in any number of counterparts, each of which shall be deemed an original. All counterparts shall constitute one and the same instrument, which shall be sufficiently evidenced by any one thereof.
12.10 Application of Code Section 409A. The Plan is intended to satisfy and comply with all of the requirements of Section 409A of the Code and any Treasury Regulations issued thereunder. The provisions of the Plan shall be interpreted and administered in accordance with such intent.
IN ORDER TO EFFECT THE PROVISIONS OF THIS AMENDED AND RESTATED PLAN DOCUMENT , Macy’s, Inc., the sponsor of the Plan, has caused its name to be subscribed to this Plan document, to be amended and restated effective as of August 1, 2018.
MACY’S, INC.
By ________________________
Title _______________________
Date _______________________
4833-2673-5977.1
Macy’s, Inc.
Subsidiary List as of February 1, 2020
Exhibit 21
Corporate Name
State of Incorporation/ Formation Trade Name(s)
Advertex Communications, Inc. New York Macy’s Marketing Bloomingdale's, Inc. Ohio Bloomingdale’s The Outlet Store, LLC Ohio Bloomingdale’s, LLC Ohio Bloomingdale’s New York Bloomingdales.com, LLC Ohio Bluemercury, Inc. Delaware Bluemercury FDS Bank N/A FDS Thrift Holding Co., Inc. Ohio Macy’s Backstage, Inc. Ohio Macy’s Corporate Services, Inc. Ohio Macy’s Credit and Customer Services, Inc. Ohio Macy’s Credit Operations, Inc. Ohio Macy’s Florida Stores, LLC Ohio Macy’s
Macy’s Merchandising Corporation New York Macy’s Merchandising Group (Hong Kong) Limited
Hong Kong
Macy’s Merchandising Group International (Hong Kong) Limited
Hong Kong
Macy’s Merchandising Group International, LLC Delaware Macy’s Merchandising Group Procurement, LLC Delaware Macy’s Merchandising Group, Inc. New York Macy’s Puerto Rico, Inc. Puerto Rico Macy’s Retail Holdings, Inc. New York Macy’s
Macy’s Systems and Technology, Inc. Ohio Macy’s West Stores, Inc. Ohio Macy’s
Macys.com, LLC Ohio West 34th Street Insurance Company New York New York
Exhibit 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders Macy’s, Inc.:
We consent to the incorporation by reference in the registration statements (Nos. 333-231970, 333-192917, 333‑160564, 333-153721, 333-153720, 333-153719, 333-133080, 333-104017, 333-185575, 333-213707 and 333-225210) on Form S-8 and (No. 333-228707) on Form S-3 of Macy’s, Inc. and subsidiaries (“Macy’s, Inc.”) of our report dated March 30, 2020, with respect to the consolidated balance sheets of Macy’s, Inc. as of February 1, 2020 and February 2, 2019, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended February 1, 2020, and the effectiveness of internal control over financial reporting as of February 1, 2020, which report appears in the February 1, 2020 annual report on Form 10‑K of Macy’s, Inc.
/s/ KPMG
Cincinnati, Ohio March 30, 2020
EXHIBIT 24
POWER OF ATTORNEY
The undersigned, a director and/or officer of Macy’s, Inc., a Delaware corporation (the “Company”), hereby constitutes and appoints each of Elisa D. Garcia and Steven R. Watts my true and lawful attorney-in-fact and agent, each with full power of substitution and resubstitution, to do any and all acts and things in my name and behalf in my capacities as director and/or officer of the Company and to execute any and all instruments for me and in my name in the capacities indicated above, which said attorneys-in-fact and agents may deem necessary or advisable to enable the Company to comply with the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any rules, regulations, and requirements of the Securities and Exchange Commission (the “Commission”), in connection with an Annual Report on Form 10-K for the year ended February 1, 2020 to be filed by the Company pursuant to Section 13 of the Exchange Act, including without limitation, power and authority to sign for me, in my name in the capacity or capacities referred to above, such Annual Report, and to file the same, with all exhibits thereto, and other documents, including amendments, in connection therewith, with the Commission, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, or any one of them, shall do or cause to be done by virtue hereof.
Dated: March 19, 2020
/s/ David P. Abney /s/ Francis S. Blake /s/ Torrence N. Boone David P. Abney Francis S. Blake Torrence N. Boone
/s/ John A. Bryant /s/ Deirdre P. Connelly /s/ Jeff Gennette John A. Bryant Deirdre P. Connelly Jeff Gennette
/s/ Leslie D. Hale /s/ William H. Lenehan /s/ Sara Levinson Leslie D. Hale William H. Lenehan Sara Levinson
/s/ Paula A. Price /s/ Joyce M. Roché /s/ Paul C. Varga Paula A. Price Joyce M. Roché Paul C. Varga
/s/ Marna C. Whittington /s/ Felicia Williams Marna C. Whittington Felicia Williams
Exhibit 31.1
CERTIFICATION
I, Jeff Gennette, certify that:
1 I have reviewed this Annual Report on Form 10-K of Macy's, Inc.;
2 Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3 Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4 The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
5 The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
March 30, 2020 /s/ Jeff Gennette Jeff Gennette Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Paula A. Price, certify that:
1 I have reviewed this Annual Report on Form 10-K of Macy's, Inc.;
2 Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3 Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4 The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.
5 The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant's internal control over financial reporting.
March 30, 2020 /s/ Paula A. Price Paula A. Price Chief Financial Officer
Exhibit 32.1
CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of Annual Report on Form 10-K of Macy's, Inc. (the "Company") for the fiscal year ended February 1, 2020, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned officer of the Company certifies that, to his knowledge:
1 The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2 The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company as of the dates and for the periods expressed in the Report.
Dated: March 30, 2020
/s/ Jeff Gennette Name: Jeff Gennette Title: Chief Executive Officer
Exhibit 32.2
CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Annual Report on Form 10-K of Macy's, Inc. (the "Company") for the fiscal year ended February 1, 2020, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned officer of the Company certifies that, to his knowledge:
1 The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2 The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company as of the dates and for the periods expressed in the Report.
Dated: March 30, 2020
/s/ Paula A. Price Name: Paula A. Price Title: Chief Financial Officer
