Note M — Retirement and Savings Benefit Plans

VF has several retirement and savings benefit plans covering eligible employees. VF retains the right to curtail or discontinue any of the plans, subject to local regulations.

Defined Benefit Pension Plans

Defined benefit plans provide pension benefits based on participant compensation and years of service. VF sponsors a noncontributory qualified defined benefit pension plan covering most full-time domestic employees employed before 2005 (the “domestic qualified plan”) and an unfunded supplemental defined benefit pension plan that provides benefits in excess of limitations imposed by income tax regulations (together, the “domestic plans”). The domestic plans comprise 92% of VF’s total defined benefit plan assets and projected benefit obligations at December 2013, and the remainder relates to defined benefit plans covering selected international employees.

The components of pension cost for VF’s defined benefit plans were as follows:

		2013				2012				2011
		In thousands
Service cost — benefits earned during the year		$	25,445			$	23,198			$	20,867
Interest cost on projected benefit obligations			72,003				77,013				78,859
Expected return on plan assets			(94,585	)			(80,619	)			(89,689	)
Amortization of deferred amounts:
Net deferred actuarial losses			85,356				69,744				43,088
Deferred prior service costs			1,270				3,357				3,453
Total pension expense		$	89,489			$	92,693			$	56,578
Weighted-average actuarial assumptions used to determine pension expense:
Discount rate			3.91	%			4.94	%			5.40	%
Expected long-term return on plan assets			5.70	%			6.38	%			6.10	%
Rate of compensation increase			3.82	%			3.85	%			3.80	%

The following provides a reconciliation of the changes in fair value of VF’s defined benefit plan assets and projected benefit obligations for each year, and the funded status at the end of each year:

		2013				2012
		In thousands
Fair value of plan assets, beginning of year		$	1,332,211			$	1,144,178
Actual return on plan assets			84,882				146,079
VF contributions			117,591				112,892
Participant contributions			2,975				2,677
Benefits paid			(73,308	)			(76,813	)
Currency translation			3,175				3,198
Fair value of plan assets, end of year			1,467,526				1,332,211
Projected benefit obligations, beginning of year			1,815,128				1,546,896
Service cost			25,445				23,198
Interest cost			72,003				77,013
Participant contributions			2,975				2,677
Actuarial (gain) loss			(178,414	)			243,766
Benefits paid			(73,308	)			(76,813	)
Plan amendments			21,321				(5,518	)
Currency translation			3,551				3,909
Projected benefit obligations, end of year			1,688,701				1,815,128
Funded status, end of year		$	(221,175	)		$	(482,917	)

Pension benefits are reported in the balance sheet as a net asset or liability based on the overfunded or underfunded status of the defined benefit plans, assessed on a plan-by-plan basis.

		2013				2012
		In thousands
Amounts included in Consolidated Balance Sheets:
Current assets		$	2,272			$	—
Current liabilities (Note J)			(9,016	)			(8,742	)
Noncurrent liabilities (Note L)			(214,431	)			(474,175	)
Funded status		$	(221,175	)		$	(482,917	)
Accumulated other comprehensive (income) loss, pretax:
Net deferred actuarial losses		$	422,932			$	676,373
Deferred prior service costs			27,594				7,525
		$	450,526			$	683,898
Accumulated benefit obligations		$	1,610,369			$	1,751,741
Weighted-average actuarial assumptions used to determine pension obligations:
Discount rate			4.63	%			3.92	%
Rate of compensation increase			3.39	%			3.83	%

Accumulated benefit obligations at any measurement date are the present value of vested and unvested pension benefits earned, without projection to future periods. Projected benefit obligations are the present value of vested and unvested pension benefits earned, considering projected future compensation increases.

Deferred actuarial losses are changes in the amount of either the benefit obligation or the value of plan assets resulting from differences between expected amounts for a year using actuarial assumptions and the actual results for that year. These amounts are deferred as a component of accumulated OCI and amortized to pension expense in future years as follows: amounts in excess of 20% of projected benefit obligations at the beginning of the year are amortized over five years; amounts between (i) 10% of the greater of projected benefit obligations or plan assets and (ii) 20% of projected benefit obligations are amortized over the expected average remaining years of service of active participants; and amounts less than the greater of 10% of projected benefit obligations or plan assets are not amortized. Deferred prior service costs related to plan amendments are also recorded in accumulated OCI and amortized to pension expense on a straight-line basis over the average remaining years of service for active employees. The estimated amounts of accumulated OCI to be amortized to pension expense in 2014 are $37.5 million of deferred actuarial losses and $5.4 million of deferred prior service costs.

Management’s investment objectives are to invest plan assets in a diversified portfolio of securities to provide long-term growth, minimize the volatility of the value of plan assets relative to plan liabilities, and to ensure plan assets are sufficient to pay the benefit payment obligations. Investment strategies focus on diversification among multiple asset classes, a balance of long-term investment return at an acceptable level of risk, and liquidity to meet benefit payments. The primary objective of the investment strategies is to more closely align plan assets with plan liabilities by utilizing dynamic asset allocation targets dependent upon changes in the plan’s funded ratio, capital market expectations, and risk tolerance.

Plan assets are primarily composed of common collective trust funds that invest in liquid securities diversified across equity, fixed income, real estate and other asset classes. Fund assets are allocated among independent investment managers who have full discretion to manage their portion of the fund’s assets, subject to strategy and risk guidelines established with each manager. The overall strategy, the resulting allocations of plan assets and the performance of funds and individual investment managers are continually monitored. Derivative financial instruments may be used by investment managers for hedging purposes to gain exposure to alternative asset classes through the futures markets. There are no investments in VF debt or equity securities and no significant concentrations of security risk.

The expected long-term rate of return on plan assets was based on an evaluation of the weighted-average of the expected returns for the major asset classes in which the plans have invested. Expected returns by asset class were developed through analysis of historical market returns, current market conditions, inflation expectations, and equity and credit risks. Inputs from various investment advisors on long-term capital market returns and other variables were also considered where appropriate.

The fair value of investments held by VF’s defined benefit plans at December 2013 and 2012, by asset class, is summarized below. See Note T for a description of the three levels of the fair value measurement hierarchy. Level 2 securities generally represent institutional funds measured at their daily net asset value derived from quoted prices of the underlying investments. Level 3 securities represent alternative investments primarily in funds of hedge funds (“FoHFs”), which are comprised of different and independent hedge funds with various investment strategies. The administrators of the FoHFs utilize unobservable inputs to calculate the net asset value of the FoHFs on a monthly basis.

		Total Plan Assets				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
		In thousands
December 2013
Cash equivalents (a)		$	35,082			$	5,322			$	29,760			$	—
Equity securities:
Domestic			165,550				—				165,550				—
International			213,580				—				213,580				—
Fixed income securities:
U.S. Treasury and government agencies			22				—				22				—
Corporate and international bonds			884,453				—				884,453				—
Alternative investments			125,624				—				—				125,624
Insurance contracts			44,720				—				44,720				—
Commodities (b)			(1,505	)			(1,505	)			—				—
		$	1,467,526			$	3,817			$	1,338,085			$	125,624
December 2012
Cash equivalents (a)		$	119,962			$	1,837			$	118,125			$	—
Equity securities:
Domestic			314,052				—				314,052				—
International			344,840				—				344,840				—
Fixed income securities:
U.S. Treasury and government agencies			39,361				39,331				30				—
Corporate and international bonds			432,410				—				432,410				—
Real estate			45,922				—				45,922				—
Insurance contracts			34,843				—				34,843				—
Commodities (b)			821				821				—				—
		$	1,332,211			$	41,989			$	1,290,222			$	—

(a)	Includes cash held by individual investment managers of other asset classes for liquidity purposes. Level 2 includes an institutional fund that invests primarily in short-term U.S. government securities.

(b)	Consists of derivative commodity futures.

The table below summarizes changes in the fair value of Level 3 pension assets in 2013:

		Alternative Investments
		In thousands
Balance, December 2012		$	—
Purchase of assets			122,980
Actual return on assets			2,644
Balance, December 2013		$	125,624

There were no transfers into or out of the Level 3 category during the year.

VF makes contributions to its defined benefit plans sufficient to meet minimum funding requirements under applicable laws, plus discretionary amounts as considered prudent. VF made a $100 million discretionary contribution to the domestic qualified plan during both 2013 and 2012. VF does not currently plan to make any additional contributions to the domestic qualified plan during 2014, but will continue to evaluate whether discretionary contributions would be appropriate. VF intends to make contributions totaling approximately $16.7 million to its other defined benefit plans during 2014. The estimated future benefit payments for all of VF’s defined benefit plans are approximately $79.2 million in 2014, $81.8 million in 2015, $85.5 million in 2016, $89.0 million in 2017, $92.8 million in 2018 and $518.6 million for the years 2019 through 2023.

Other Retirement and Savings Plans

VF sponsors a nonqualified retirement savings plan for employees whose contributions to a 401(k) plan would be limited by provisions of the Internal Revenue Code. This plan allows participants to defer a portion of their compensation and to receive matching contributions for a portion of the deferred amounts. Participants earn a return on their deferred compensation based on their selection of a hypothetical portfolio of publicly traded mutual funds, a separately managed fixed income fund and VF Common Stock. Changes in the fair value of the participants’ hypothetical investments are recorded as an adjustment to deferred compensation liabilities and compensation expense. Expense under this plan was $5.4 million in 2013, $4.7 million in 2012, and $4.3 million in 2011. Deferred compensation, including accumulated earnings, is distributable in cash at participant-specified dates or upon retirement, death, disability or termination of employment. Similarly, under a separate nonqualified plan, nonemployee members of the Board of Directors may defer their Board compensation and invest it in hypothetical shares of VF Common Stock. VF also has remaining obligations under deferred compensation plans of acquired companies. At December 2013, VF’s liability to participants under all deferred compensation plans was $276.2 million, of which $31.6 million was recorded in accrued liabilities (Note J) and $244.6 million was recorded in other liabilities (Note L).

VF has purchased (i) publicly traded mutual funds, a separately managed fixed income fund and VF Common Stock in the same amounts as most of the participant-directed hypothetical investments underlying the deferred compensation liabilities and (ii) variable life insurance contracts that invest in institutional funds that are substantially the same as the participant-directed hypothetical investments. These investment securities and earnings thereon (other than VF Common Stock) are intended to provide a source of funds to meet the deferred compensation obligations, and serve as an economic hedge of the financial impact of changes in deferred compensation liabilities. They are held in an irrevocable trust but are subject to claims of creditors in the event of VF’s insolvency. VF also has assets related to deferred compensation plans of acquired companies, which are primarily invested in life insurance contracts. At December 2013, the fair value of investments held for all deferred compensation plans was $247.7 million, of which $30.0 million was recorded in other current assets and $217.7 million was recorded in other assets (Note H). The VF Common Stock purchased to match participant-directed hypothetical investments is treated as treasury stock for financial reporting purposes (Note N), which is the primary reason for the difference in carrying value of the investment securities and the recorded deferred compensation liabilities. Realized and unrealized gains and losses on these investments (other than VF Common Stock) are recorded in compensation expense in the Consolidated Statements of Income and substantially offset losses and gains resulting from changes in deferred compensation liabilities to participants. VF sponsors 401(k) plans as well as other domestic and foreign retirement and savings plans. Expense for these plans totaled $22.0 million in 2013, $18.7 million in 2012 and $16.9 million in 2011.