(12) EMPLOYEE BENEFITS

In connection with the Allstream Acquisition on January 15, 2016 (see Note 3 – Acquisitions and Dispositions), Bell MTS agreed to retain the Allstream Acquisition Entity’s former defined benefit pension obligations, and related pension plan assets, of retirees and other former employees of the Allstream Acquisition Entity and also agreed to reimburse the Allstream Acquisition Entity for certain solvency funding payments related to the pension obligations of active employees of the Allstream Acquisition Entity as of January 15, 2016. On October 31, 2017, Bell MTS transferred assets of CAD $117.9 million (or $91.6 million) from the Allstream Acquisition Entity’s former defined benefit pension plans related to pre-closing service obligations for active employees to defined benefit pension plans of the Allstream Acquisition Entity created by the Company on January 15, 2016. The assets were transferred on a fully funded basis calculated on a solvency basis, however on a GAAP basis, the plans are underfunded. Upon transfer, a prior period service cost was recognized in other comprehensive income for the underfunded amount, consistent with the Company’s accounting policies. The Company became responsible for accruing post-acquisition liabilities related to these plans as of the Allstream Acquisition date of January 15, 2016. The Company also sponsors an OPEB for certain former employees of the Allstream Acquisition Entity, which provides health care and life insurance benefits for certain eligible retirees. These OPEB plans are not funded. Benefits are paid directly to the participants of these plans.

The Company uses a June 30 annual measurement date for its defined benefit and postretirement benefit plans. Upon the transfer of the pre-closing service obligation, a measurement was obtained. No comparative period figures were disclosed in the tables or notes below, as the amounts for employee benefits were not material for those periods.

Defined benefit plans

The Company maintains defined benefit pension plans that provide pension benefits for certain former employees of the Allstream Acquisition Entity. Benefits are based on the employee’s length of service and average rate of pay during the highest paid consecutive three years of service. The Company is responsible for adequately funding the pension plans. Contributions are made based on various actuarial cost methods permitted by pension regulatory bodies. Contributions reflect actuarial assumptions about future investment returns, salary projections, future service and life expectancy.

The following tables provide a reconciliation of the changes in the benefit obligations, fair value of plan assets and the unfunded status for the Company’s defined benefit pension and OPEB, where applicable:


	Pension Plans
	(in millions)
Change in projected benefit obligation for defined benefit pension plans:
Projected benefit obligation at July 1, 2017	$	6.7
Service cost		2.7
Interest cost		2.5
Actuarial loss (gain)		9.3
Participant contributions		0.6
Benefits paid from plan assets		(3.3)
Acquisition transfer		97.6
Settlements		(2.5)
Foreign currency exchange rate changes		(0.1)
Projected benefit obligation at June 30, 2018	$	113.5


	OPEB Plans
	(in millions)
Change in projected benefit obligation for OPEB plans:
Projected benefit obligation at July 1, 2017	$	9.9
Service cost		0.1
Interest cost		0.3
Actuarial loss (gain)		0.4
Benefits paid by Company		(0.6)
Foreign currency exchange rate changes		(0.1)
Projected benefit obligation at June 30, 2018	$	10.0

The accumulated benefit obligation of the defined benefit plan and OPEB at June 30, 2018 are $103.9 million and $10.0 million, respectively.


	Pension Plans
	(in millions)
Change in pension plan assets:
Fair value of plan assets at July 1, 2017	$	3.7
Acquisition transfer		89.8
Return on plan assets		2.4
Employer contributions		2.9
Participant contributions		0.6
Benefits paid from plan assets		(3.3)
Settlements		(2.6)
Fair value of pension plan assets at June 30, 2018	$	93.5

The unfunded status of the projected benefit obligation at June 30, 2018 was $20.0 million, which was recorded as other long-term liabilities.


	Pension Plans
	As of June 30, 2018
	(in millions)
Projected benefit obligation	$	113.5
Fair value of plan assets		93.5
Unfunded status		20.0
Current portion of unfunded status	$	—
Non-current portion of unfunded status	$	20.0

The following table provides information regarding change in amounts from June 30, 2017 in accumulated other comprehensive loss (“AOCI”) that have not yet been recognized as components of net periodic benefit cost at June 30, 2018:


	As of June 30, 2017		Recognition of Net Periodic Benefits Expense		Deferrals		Net Change in AOCI		As of June 30, 2018
	(in millions)
Accumulated other comprehensive loss:
Pension plans:
Net actuarial (loss)/gain	$	—	$	—	$	(11.2)	$	(11.2)	$	(11.2)
Prior service benefit/(cost)		—		0.4		(7.8)		(7.4)		(7.4)
Deferred income tax benefit/(expense)		—		(0.1)		5.6		5.5		5.5
Total pension plans		—		0.3		(13.4)		(13.1)		(13.1)

OPEB plans:
Net actuarial (loss)/gain		(1.2)		—		(0.4)		(0.4)		(1.6)
Prior service (cost)/benefit		—		—		—		—		—
Deferred income tax benefit/(expense)		0.4		—		—		—		0.4
Total OPEB plans		(0.8)		—		(0.4)		(0.4)		(1.2)
Total accumulated other comprehensive loss	$	(0.8)	$	0.3	$	(13.8)	$	(13.5)	$	(14.3)

There have been no material amounts reclassified from AOCI during the period.

The following table presents the expected amortization amounts during next fiscal year for the defined benefit pension plans:


	Pension Plans
	(in millions)
Amortization of net prior service cost/(benefit)	$	0.7
Total expected amortization amounts during fiscal year 2019	$	0.7

The expected benefit payments for the Company’s defined benefit pension and OPEB plans for the years indicated are as follows:


	Pension Plans		OPEB Plans
	(in millions)
Year ended June 30,
2019	$	2.2	$	0.5
2020		2.4		0.5
2021		2.7		0.5
2022		2.9		0.5
2023		3.1		0.5
2024-2028		19.0		2.3

The following table presents the expected contributions during next fiscal year for the defined benefit pension and OPEB plans:


	Pension Plans		OPEB Plans
	(in millions)
Employer	$	2.9	$	0.5
Plan participants		0.5		—
Total expected contributions during fiscal year 2019	$	3.4	$	0.5

Net periodic (benefit) cost of the defined benefit pension and OPEB is included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations includes the following components:



	Pension Plans
	Year ended June 30, 2018
	( in millions)
Service cost	$	2.7
Interest cost		2.5
Expected return on plan assets		(3.8)
Amortization of service cost from earlier periods		0.4
Cost of settlements		0.2
Net periodic pension benefit cost	$	2.0


	OPEB Plans
	Year ended June 30, 2018
	(in millions)
Service cost	$	0.1
Interest cost		0.3
Net periodic pension benefit cost	$	0.4

The following tables present the assumptions used in determining benefit obligations of the defined benefit pension and OPEB plans:


	Pension Plans		OPEB Plans
Actuarial assumptions:
Discount rate		3.25%		3.25%
Price inflation		1.75%		N/A
Expected long-term rate of return on plan assets		5.7%		N/A
Rate of compensation increase		2.5%		N/A

The discount rates utilized reflect the average yield on high quality corporate bonds of similar duration to the plans’ liabilities. The discount rate used to calculate the employee future benefits obligation is determined at each year end by referring to the most recently available market interest rates based on “AA”-rated corporate bond yields reflecting the duration of the employee future benefit plans. Under the yield curve approach, expected future benefit payments for each plan are discounted by a rate on a third-party bond yield curve corresponding to each duration. The yield curve is based on “AA” long-term corporate bonds. A single discount rate is calculated that would yield the same present value as the sum of the discounted cash flows.

The expected return on assets assumption for the plans is determined as the estimate of future experience for trust asset returns, reflecting the plans’ current asset allocation and any expected changes during the current plan year, current market conditions and expectations for future market conditions.

The investment objective of the defined benefit pension plans is to provide a risk-adjusted return that will ensure the payment of benefits while protecting against the risk of substantial investment losses. Correlations among the asset classes are used to identify an asset mix that the Company believes will provide the most attractive returns. Long-term return forecasts for each asset class using historical data and other qualitative considerations to adjust for projected economic forecasts are used to set the expected rate of return for the entire portfolio.

The defined benefit pension plan utilizes various investment securities. Generally, investment securities are exposed to various risks, such as interest rate risks, credit risk, and overall market volatility. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur and that such changes could materially affect the amounts reported.

The following table presents the Company’s target for the allocation of invested defined benefit pension plan assets at June 30, 2018:


	As of June 30, 2018
Fixed income		40%
Equities		55%
Other		5%
Total		100%

The plans assets are invested in various fund categories utilizing multiple strategies and investment managers. Interests in funds are valued using the net asset value ("NAV") per unit of each fund. The NAV reported by the fund manager is based on the market value of the underlying investments owned by each fund, minus its liabilities, divided by the number of shares outstanding. These funds can be redeemed at NAV, generally at any time. As the funds do not publish publicly available prices, the NAV practical expedient is the most appropriate fair value classification for the plan asset investments. The value associated with these investments is disclosed in the reconciliation of the total investments measured at fair value shown below.

The table below presents the fair value of plan assets valued at NAV by category for the pension and OPEB plans at June 30, 2018.


	As of June 30, 2018
	(in millions)
Fixed income	$	33.1
Equities		55.2
Other		5.2
Total	$	93.5

Fixed income – Fixed income represents investments in commingled bond funds comprised of Canadian government, corporate bonds, and mortgage-backed securities.

Equities – Equities represent investments in commingled equities funds comprised of investments in U.S., Canadian and global equities.

Other – Other investments are comprised of investments in commingled real estate funds.