Pension Plans and Other Postretirement Benefits (Tables)

12 Months Ended

Dec. 31, 2011

Notes To Financial Statements [Abstract]

The tables on the following page present the fair value of plan assets excluding the economic exposure of derivatives as at December 31, 2011 and 2010 by asset class, their level within the fair value hierarchy and the valuation techniques and inputs used to measure such fair value.

In millions, unless otherwise indicated					Fair value measurements at December 31, 2011
Asset class		Total	Percentage of total assets		Level 1		Level 2		Level 3
Cash and short-term investments ⁽¹⁾	$	1,026	7.0%	$	21	$	1,005	$	-
Bonds ⁽²⁾
Canada and supranational		1,650	11.2%		-		1,650		-
Provinces of Canada		1,937	13.1%		-		1,937		-
Emerging market debt		288	2.0%		-		288		-
Mortgages ⁽³⁾		178	1.2%		8		170		-
Equities ⁽⁴⁾
Canadian		2,395	16.3%		2,373		-		22
U.S.		1,125	7.6%		1,087		38		-
International		2,712	18.4%		2,680		32		-
Real estate ⁽⁵⁾		214	1.5%		-		-		214
Oil and gas ⁽⁶⁾		1,232	8.4%		343		-		889
Infrastructure ⁽⁷⁾		707	4.8%		9		79		619
Absolute return ⁽⁸⁾							-		-
Multi-strategy funds		358	2.4%		-		358		-
Fixed income funds		214	1.5%		-		214		-
Equity funds		260	1.8%		-		260		-
Global macro funds		368	2.5%		-		368		-
	$	14,664	99.7%	$	6,521	$	6,399	$	1,744
Other ⁽⁹⁾		55	0.3%
Total plan assets	$	14,719	100%

In millions, unless otherwise indicated					Fair value measurements at December 31, 2010
Asset class		Total	Percentage of total assets		Level 1		Level 2		Level 3
Cash and short-term investments ⁽¹⁾	$	429	2.8%	$	429	$	-	$	-
Bonds ⁽²⁾
Canada and supranational		2,013	13.3%		-		2,013		-
Provinces of Canada		1,292	8.6%		-		1,292		-
Corporate		92	0.6%		-		92		-
Emerging market debt		318	2.1%		-		318		-
Mortgages ⁽³⁾		205	1.4%		30		175		-
Equities ⁽⁴⁾
Canadian		3,228	21.4%		3,204		-		24
U.S.		1,316	8.7%		1,316		-		-
International		3,076	20.4%		3,076		-		-
Real estate ⁽⁵⁾		318	2.1%		-		-		318
Oil and gas ⁽⁶⁾		1,141	7.6%		289		-		852
Infrastructure ⁽⁷⁾		607	4.0%		29		85		493
Absolute return ⁽⁸⁾
Multi-strategy funds		311	2.1%		-		106		205
Fixed income funds		197	1.3%		-		197		-
Commodity funds		75	0.5%		-		75		-
Equity funds		148	1.0%		-		147		1
Global macro funds		292	1.9%		-		292		-
	$	15,058	99.8%	$	8,373	$	4,792	$	1,893
Other ⁽⁹⁾		34	0.2%
Total plan assets	$	15,092	100%
Level 1: Fair value based on quoted prices in active markets for identical assets
Level 2: Fair value based on significant observable inputs
Level 3: Fair value based on significant unobservable inputs					Footnotes to the tables follow on the next page


(1)	Short-term investments consist primarily of securities issued by Canadian chartered banks. Such investments are valued at cost, which approximates fair value.
(2)	Bonds are valued using prices obtained from independent pricing data suppliers, predominantly TSX Inc. When prices are not available from independent sources, the bond is valued by comparison to prices obtained for a bond of similar interest rate, maturity and risk.
(3)	Mortgages are secured by real estate. The fair value measurement of $170 million ($175 million in 2010) of mortgages categorized as Level 2 is based on current market yields of financial instruments of similar maturity, coupon and risk factors. Mortgages denominated in foreign currencies are fully hedged back to the Canadian dollar, the effects of which are reflected in the values presented in the tables above.


(4)	The fair value of equity investments of $22 million ($24 million in 2010) categorized as Level 3 represent units in private equity funds which are valued by their administrators.
(5)	The fair value of real estate investments of $214 million ($318 million in 2010) includes land and buildings classified as Level 3. Land is valued based on the fair value of comparable assets, and buildings are valued based on the present value of estimated future net cash flows or the fair value of comparable assets. Independent valuations of land and buildings are performed triennially.
(6)	The fair value of oil and gas investments of $889 million ($852 million in 2010) classified as Level 3 is valued based on estimated future net cash flows that are discounted using prevailing market rates for transactions in similar assets. The future net cash flows are based on forecasted oil and gas prices and projected future annual production and costs.
(7)	Infrastructure funds consist of $9 million ($29 million in 2010) of trust units that are publicly traded and classified as Level 1, $79 million ($85 million in 2010) of bank loans and bonds issued by infrastructure companies classified as Level 2 and $619 million ($493 million in 2010) of infrastructure funds that are classified as Level 3 and are valued based on earnings multiples. Infrastructure funds cannot be redeemed; distributions will be received from the funds as the underlying investments are liquidated. Infrastructure funds denominated in foreign currencies are fully hedged back to the Canadian dollar, the effects of which are reflected in the values presented in the additional information table presented above.
(8)	Absolute return investments are valued using the net asset value as reported by the fund administrators. All hedge fund investments have contractual redemption frequencies, ranging from monthly to annually, and redemption notice periods varying from 5 to 90 days. Hedge fund investments that have redemption dates less frequent than every four months or that have restrictions on contractual redemption features at the reporting date are classified as Level 3. During the year, absolute return investments having a fair value of $198 million (nil in 2010) were transferred from Level 3 to Level 2 as the restrictions on redemption were lifted.

(9)

Other consists of net operating assets required to administer the trust funds' investment assets and the plans' benefit and funding activities. Such assets are valued at cost and have not been assigned to a fair value category.

Reconciliation of the fair value of investments categorized as Level 3 and additional information regarding infrastructure investments


The following table reconciles the beginning and ending balances of the fair value of investments classified as Level 3.

		Fair value measurements using significant unobservable inputs (Level 3)												Additional information ⁽¹⁰⁾
															Infra- stracture hedged		Absolute return hedged
In millions			Equities ⁽⁴⁾		Real estate ⁽⁵⁾		Oil and gas ⁽⁶⁾		Infrastructure ⁽⁷⁾		Absolute return ⁽⁸⁾		Total		Infra- stracture hedged		Absolute return hedged
Beginning balance at
December 31, 2009		$	18	$	266	$	752	$	449	$	182	$	1,667	$	449	$	182
	Actual return relating to assets still held at the reporting date		3		32		90		19		(11)		133		46		-
	Purchases, sales and settlements		3		(14)		(48)		25		109		75		1		99
	Transfers in and/or out of Level 3		-		34		58		-		(74)		18		-		(74)
Balance at
December 31, 2010		$	24	$	318	$	852	$	493	$	206	$	1,893	$	496	$	207
	Actual return relating to assets still held at the reporting date		2		58		90		74		(7)		217		63		(8)
	Purchases, sales and settlements		(4)		(162)		(53)		52		(1)		(168)		62		(1)
	Transfers in and/or out of Level 3		-		-		-		-		(198)		(198)		-		(198)
Ending balance at
December 31, 2011		$	22	$	214	$	889	$	619	$	-	$	1,744	$	621	$	-


(4)	The fair value of equity investments of $22 million ($24 million in 2010) categorized as Level 3 represent units in private equity funds which are valued by their administrators.
(5)	The fair value of real estate investments of $214 million ($318 million in 2010) includes land and buildings classified as Level 3. Land is valued based on the fair value of comparable assets, and buildings are valued based on the present value of estimated future net cash flows or the fair value of comparable assets. Independent valuations of land and buildings are performed triennially.
(6)	The fair value of oil and gas investments of $889 million ($852 million in 2010) classified as Level 3 is valued based on estimated future net cash flows that are discounted using prevailing market rates for transactions in similar assets. The future net cash flows are based on forecasted oil and gas prices and projected future annual production and costs.
(7)	Infrastructure funds consist of $9 million ($29 million in 2010) of trust units that are publicly traded and classified as Level 1, $79 million ($85 million in 2010) of bank loans and bonds issued by infrastructure companies classified as Level 2 and $619 million ($493 million in 2010) of infrastructure funds that are classified as Level 3 and are valued based on earnings multiples. Infrastructure funds cannot be redeemed; distributions will be received from the funds as the underlying investments are liquidated. Infrastructure funds denominated in foreign currencies are fully hedged back to the Canadian dollar, the effects of which are reflected in the values presented in the additional information table presented above.
(8)	Absolute return investments are valued using the net asset value as reported by the fund administrators. All hedge fund investments have contractual redemption frequencies, ranging from monthly to annually, and redemption notice periods varying from 5 to 90 days. Hedge fund investments that have redemption dates less frequent than every four months or that have restrictions on contractual redemption features at the reporting date are classified as Level 3. During the year, absolute return investments having a fair value of $198 million (nil in 2010) were transferred from Level 3 to Level 2 as the restrictions on redemption were lifted.

(10)

This additional information demonstrates the fair value of the infrastructure and absolute return funds after considering the effects of foreign currency hedges.

Obligations and funded status - change in benefit Obligation


		Pensions			Other postretirement benefits
In millions	Year ended December 31,		2011	2010		2011	2010


Change in benefit obligation
Projected benefit obligation at beginning of year	$	14,895	$	13,708	$	283	$	268
Amendments		27		5		1		-
Interest cost		788		837		14		16
Actuarial loss (gain)		577		1,118		(2)		22
Service cost		124		99		4		3
Curtailment gain		-		-		(1)		(1)
Plan participants’ contributions		54		50		-		-
Foreign currency changes		5		(12)		3		(6)
Benefit payments, settlements and transfers		(922)		(910)		(18)		(19)
Projected benefit obligation at end of year	$	15,548	$	14,895	$	284	$	283

Component representing future salary increases		(437)		(439)		-		-
Accumulated benefit obligation at end of year	$	15,111	$	14,456	$	284	$	283

Measurement date for all plans is December 31.

The projected benefit obligation and fair value of plan assets for the CN Pension Plan at December 31, 2011 were $14,514 million and $13,992 million respectively ($13,941 million and $14,343 million, respectively, at December 31, 2010).

Obligations and funded status - change in plan assets


		Pensions			Other postretirement benefits
In millions	Year ended December 31,		2011	2010		2011	2010


Change in plan assets
Fair value of plan assets at beginning of year	$	15,092	$	14,332	$	-	$	-
Employer contributions		458		411		-		-
Plan participants’ contributions		54		50		-		-
Foreign currency changes		1		(8)		-		-
Actual return on plan assets		36		1,217		-		-
Benefit payments, settlements and transfers		(922)		(910)		-		-
Fair value of plan assets at end of year	$	14,719	$	15,092	$	-	$	-

Measurement date for all plans is December 31.

Schedule of net funded status

(i) Obligations and funded status


		Pensions			Other postretirement benefits
In millions	Year ended December 31,		2011	2010		2011	2010


Change in benefit obligation
Projected benefit obligation at beginning of year	$	14,895	$	13,708	$	283	$	268
Amendments		27		5		1		-
Interest cost		788		837		14		16
Actuarial loss (gain)		577		1,118		(2)		22
Service cost		124		99		4		3
Curtailment gain		-		-		(1)		(1)
Plan participants’ contributions		54		50		-		-
Foreign currency changes		5		(12)		3		(6)
Benefit payments, settlements and transfers		(922)		(910)		(18)		(19)
Projected benefit obligation at end of year	$	15,548	$	14,895	$	284	$	283

Component representing future salary increases		(437)		(439)		-		-
Accumulated benefit obligation at end of year	$	15,111	$	14,456	$	284	$	283


Change in plan assets
Fair value of plan assets at beginning of year	$	15,092	$	14,332	$	-	$	-
Employer contributions		458		411		-		-
Plan participants’ contributions		54		50		-		-
Foreign currency changes		1		(8)		-		-
Actual return on plan assets		36		1,217		-		-
Benefit payments, settlements and transfers		(922)		(910)		-		-
Fair value of plan assets at end of year	$	14,719	$	15,092	$	-	$	-


Funded status (Excess (deficiency) of fair value of plan assets over
projected benefit obligation at end of year)	$	(829)	$	197	$	(284)	$	(283)

Measurement date for all plans is December 31.

Amounts recognized in the Consolidated Balance Sheet


(ii) Amounts recognized in the Consolidated Balance Sheet
		Pensions				Other postretirement benefits
In millions	December 31,		2011		2010		2011		2010

Noncurrent assets (Note 6)		$	-	$	442	$	-	$	-
Current liabilities (Note 7)			-		-		(18)		(18)
Noncurrent liabilities			(829)		(245)		(266)		(265)
Total amount recognized		$	(829)	$	197	$	(284)	$	(283)

Amounts recognized in Accumulated other comprehensive loss


(iii) Amounts recognized in Accumulated other comprehensive loss (Note 19)
		Pensions				Other postretirement benefits
In millions	December 31,		2011		2010		2011		2010
Net actuarial gain (loss)		$	(2,720)	$	(1,185)	$	3	$	1
Prior service cost		$	(30)	$	(5)	$	(3)	$	(4)

Information for the pension plans with an accumulated benefit obligation in excess of plan assets


(iv) Information for the pension plans with an accumulated benefit obligation in excess of plan assets
		Pensions				Other postretirement benefits
In millions	December 31,		2011		2010		2011	2010
Projected benefit obligation		$	15,015	$	436		N/A	N/A
Accumulated benefit obligation		$	14,606	$	386		N/A	N/A
Fair value of plan assets		$	14,191	$	191		N/A	N/A

Components of net periodic benefit cost (income)


(v) Components of net periodic benefit cost (income)
		Pensions						Other postretirement benefits
In millions	Year ended December 31,		2011		2010		2009		2011		2010		2009
Service cost		$	124	$	99	$	83	$	4	$	3	$	3
Interest cost			788		837		885		14		16		17
Curtailment gain			-		-		-		(1)		(1)		(3)
Settlement loss			3		-		-		-		-		-
Expected return on plan assets			(1,005)		(1,009)		(1,007)		-		-		-
Amortization of prior service cost			2		-		-		2		2		5
Recognized net actuarial loss (gain)			8		3		5		-		(2)		(3)
Net periodic benefit cost (income)		$	(80)	$	(70)	$	(34)	$	19	$	18	$	19

The estimated prior service cost and net actuarial loss for defined benefit pension plans that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost (income) over the next fiscal year are $4 million and $123 million, respectively.
The estimated prior service cost and net actuarial gain for other postretirement benefits that will be amortized from Accumulated other comprehensive loss into net periodic benefit cost (income) over the next fiscal year are $2 million and nil, respectively.

Weighted-average assumptions used in accounting for pensions and other postretirement benefits


(vi) Weighted-average assumptions used in accounting for pensions and other postretirement benefits
			Pensions			Other postretirement benefits
		December 31,	2011	2010	2009	2011	2010	2009

To determine projected benefit obligation
Discount rate ⁽¹⁾			4.84%	5.32%	6.19%	4.70%	5.29%	6.01%
Rate of compensation increase ⁽²⁾			3.25%	3.50%	3.50%	3.25%	3.50%	3.50%

To determine net periodic benefit cost
Discount rate ⁽¹⁾			5.32%	6.19%	7.42%	5.29%	6.01%	6.84%
Rate of compensation increase ⁽²⁾			3.50%	3.50%	3.50%	3.50%	3.50%	3.50%
Expected return on plan assets ⁽³⁾			7.50%	7.75%	7.75%	N/A	N/A	N/A

(1)	The Company’s discount rate assumption, which is set annually at the end of each year, is used to determine the projected benefit obligation at the end of the year and the net periodic benefit cost for the following year. The discount rate is used to measure the single amount that, if invested at the measurement date in a portfolio of high-quality debt instruments with a rating of AA or better, would provide the necessary cash flows to pay for pension benefits as they become due. The discount rate is determined by management with the aid of third-party actuaries. The Company’s methodology for determining the discount rate is based on a zero-coupon bond yield curve, which is derived from semi-annual bond yields provided by a third party. The portfolio of hypothetical zero-coupon bonds is expected to generate cash flows that match the estimated future benefit payments of the plans as the bond rate for each maturity year is applied to the plans’ corresponding expected benefit payments of that year.
(2)	The rate of compensation increase is determined by the Company based upon its long-term plans for such increases.
(3)	To develop its expected long-term rate of return assumption used in the calculation of net periodic benefit cost applicable to the market-related value of assets, the Company considers multiple factors. The expected long-term rate of return is determined based on expected future performance for each asset class and is weighted based on the current asset portfolio mix. Consideration is taken of the historical performance, the premium return generated from an actively managed portfolio, as well as current and future anticipated asset allocations, economic developments, inflation rates and administrative expenses. Based on these factors, the rate is determined by the Company. For 2011, the Company used a long-term rate of return assumption of 7.50% on the market-related value of plan assets to compute net periodic benefit cost. The Company has elected to use a market-related value of assets, whereby realized and unrealized gains/losses and appreciation/depreciation in the value of the investments are recognized over a period of five years, while investment income is recognized immediately. Effective January 1, 2012 the Company will reduce the expected long-term rate of return on plan assets from 7.50% to 7.25% to reflect management's current view of long term investment returns. The effect of this change in management's assumption will be to increase net periodic benefit cost by approximately $20 million.

Effect of One-Percentage-Point change in assumed health care cost trend Rate


(vii) Health care cost trend rate for other postretirement benefits
For measurement purposes, increases in the per capita cost of covered health care benefits were assumed to be 10% and 9% for 2011 and 2012, respectively. It is assumed that the rate will decrease gradually to 4.5% in 2028 and remain at that level thereafter.
Assumed health care costs have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in the assumed health care cost trend rate would have the following effect:

In millions	One-percentage-point
		Increase		Decrease
Effect on total service and interest costs		$	1	$	(1)
Effect on benefit obligation		$	16	$	(14)

Estimated future benefit payments


(viii) Estimated future benefit payments

In millions	Pensions		Other postretirement benefits
2012	$	973		$	18
2013	$	996		$	18
2014	$	1,018		$	19
2015	$	1,040		$	19
2016	$	1,060		$	19
Years 2017 to 2021	$	5,444		$	98