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Pensions and Other Postretirement Benefits (Tables)
 12 Months Ended
Dec. 31, 2018
Retirement Benefits [Abstract]  
Schedule of allocation of plan assets
The Company's 2018 Policy and actual asset allocation for the Company's pension plans based on fair value are as follows:
 
 
 
Actual plan asset allocation
 
Policy

 
2018

 
2017

Cash and short-term investments
3
%
 
3
%
 
4
%
Bonds and mortgages
42
%
 
38
%
 
35
%
Equities
40
%
 
33
%
 
37
%
Real estate
4
%
 
2
%
 
2
%
Oil and gas
7
%
 
6
%
 
6
%
Infrastructure and private debt
4
%
 
6
%
 
5
%
Absolute return
—

 
10
%
 
9
%
Risk-factor allocation
—

 
2
%
 
2
%
Total
100
%
 
100
%
 
100
%
Fair value of plan assets by class
The following tables present the fair value of plan assets by asset class as at December 31, 2018 and 2017:
 
Fair value measurements at December 31, 2018
In millions
Total

 
Level 1

 
Level 2

 
Level 3

 
NAV

Cash and short-term investments (1)
$
577

 
$
12

 
$
565

 
$
—

 
$
—

Bonds (2)


 


 


 


 


Canada, U.S. and supranational
1,801

 
—

 
1,801

 
—

 
—

Provinces of Canada and municipalities
2,987

 
—

 
2,987

 
—

 
—

Corporate
1,180

 
—

 
1,180

 
—

 
—

Emerging market debt
540

 
—

 
540

 
—

 
—

Mortgages (3)
90

 
—

 
90

 
—

 
—

Private debt (4)
366

 
—

 
—

 
—

 
366

Public equities (5) (6)


 


 


 


 


Canadian
1,561

 
1,561

 
—

 
—

 
—

U.S.
447

 
447

 
—

 
—

 
—

International
3,338

 
3,338

 
—

 
—

 
—

Private equities (6) (7)
274

 
—

 
—

 
—

 
274

Real estate (8)
421

 
—

 
—

 
321

 
100

Oil and gas (9)
948

 
202

 
18

 
728

 
—

Infrastructure (10)
704

 
—

 
64

 
—

 
640

Absolute return funds (11)


 
 
 
 
 
 
 
 
Multi-strategy
898

 
—

 
—

 
—

 
898

Fixed income
239

 
—

 
—

 
—

 
239

Global macro
480

 
—

 
—

 
—

 
480

Risk-factor allocation (12)
286

 
—

 
—

 
—

 
286

Total
$
17,137

 
$
5,560

 
$
7,245

 
$
1,049

 
$
3,283

Other (13)
107

 
 
 
 
 
 
 
 
Total plan assets
$
17,244

 
 
 
 
 
 
 
 
 
Fair value measurements at December 31, 2017
In millions
Total

 
Level 1

 
Level 2

 
Level 3

 
NAV

Cash and short-term investments (1)
$
836

 
$
17

 
$
819

 
$
—

 
$
—

Bonds (2)


 


 


 


 


Canada, U.S. and supranational
1,792

 
—

 
1,792

 
—

 
—

Provinces of Canada and municipalities
2,459

 
—

 
2,459

 
—

 
—

Corporate
1,587

 
—

 
1,587

 
—

 
—

Emerging market debt
530

 
—

 
530

 
—

 
—

Mortgages (3)
97

 
—

 
97

 
—

 
—

Private debt (4)
242

 
—

 
—

 
—

 
242

Public equities (5) (6)


 


 


 


 


Canadian
1,848

 
1,848

 
—

 
—

 
—

U.S.
775

 
775

 
—

 
—

 
—

International
3,883

 
3,883

 
—

 
—

 
—

Private equities (6) (7)
297

 
—

 
—

 
—

 
297

Real estate (8)
410

 
—

 
—

 
332

 
78

Oil and gas (9)
1,120

 
333

 
18

 
769

 
—

Infrastructure (10)
682

 
—

 
84

 
—

 
598

Absolute return funds (11)
 
 
 
 
 
 
 
 
 
Multi-strategy
897

 
—

 
—

 
—

 
897

Fixed income
224

 
—

 
—

 
—

 
224

Equity
32

 
—

 
—

 
—

 
32

Global macro
444

 
—

 
—

 
—

 
444

Risk-factor allocation (12)
345

 
—

 
—

 
—

 
345

Total
$
18,500

 
$
6,856

 
$
7,386

 
$
1,101

 
$
3,157

Other (13)
64

 


 


 


 


Total plan assets
$
18,564

 


 


 


 


Level 1: Fair value based on quoted prices in active markets for identical assets.
Level 2: Fair value based on other significant observable inputs.
Level 3: Fair value based on significant unobservable inputs.
NAV: Investments measured at net asset value as a practical expedient.
Footnotes to the table follow on the next page.
Reconciliation of the fair value of investments categorized as Level 3
The following table reconciles the beginning and ending balances of the fair value of investments classified as Level 3:
 
 
Fair value measurements based on significant unobservable inputs (Level 3)
In millions
 
Real estate (8)

 
Oil and gas (9)

 
Total

 
 
 
 
 
 
 
Balance at December 31, 2016
 
$
324

 
$
722

 
$
1,046

Actual return relating to assets still held at the reporting date
19

 
88

 
107

Disbursements
(11
)
 
(41
)
 
(52
)
Balance at December 31, 2017
 
$
332

 
$
769

 
$
1,101

Actual return relating to assets still held at the reporting date
(2
)
 
(11
)
 
(13
)
Purchases
1

 
—

 
1

Sales
(1
)
 
—

 
(1
)
Disbursements
(9
)
 
(30
)
 
(39
)
Balance at December 31, 2018
 
$
321

 
$
728

 
$
1,049

(1)
Cash and short-term investments with related accrued interest are valued at cost, which approximates fair value, and are categorized as Level 1 and Level 2 respectively.
(2)
Bonds, excluding emerging market debt funds, are valued using mid-market prices obtained from independent pricing data suppliers. When prices are not available from independent sources, the fair value is based on the present value of future cash flows using current market yields for comparable instruments. Emerging market debt funds are valued based on the net asset value which is readily available and published by each fund's independent administrator.
(3)
Mortgages are valued based on the present value of future net cash flows using current market yields for comparable instruments.
(4)
Private debt investments are valued based on the net asset value as reported by each fund's manager, generally using a discounted cash flow analysis.
(5)
The fair value of public equity investments is based on quoted prices in active markets for identical assets.
(6)
In 2018, the Company presented private equities separately from public equities, as such, the 2017 comparative figures have been adjusted to conform to the current presentation.
(7)
Private equity investments are valued based on the net asset value as reported by each fund's manager, generally using discounted cash flow analysis.
(8)
The fair value of real estate investments categorized as Level 3 includes land and buildings. 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 on a rotational basis. The fair value of real estate investments categorized as NAV consists mainly of investments in real estate private equity funds and is based on the net asset value as reported by each fund's manager, generally using a discounted cash flow analysis or earnings multiples.
(9)
Oil and gas investments categorized as Level 1 are valued based on quoted prices in active markets. Investments in oil and gas equities traded on a secondary market are valued based on the most recent transaction price and are categorized as Level 2. Investments in oil and gas categorized as Level 3 consist of operating oil and gas properties and the fair value is based on estimated future net cash flows that are discounted using prevailing market rates for transactions in similar assets. Estimated future net cash flows are based on forecasted oil and gas prices and projected annual production and costs.
(10)
The fair value of infrastructure investments categorized as Level 2 is based on the present value of future cash flows using current market yields for comparable instruments. The fair value of infrastructure funds categorized as NAV is based on the net asset value as reported by each fund's manager, generally using a discounted cash flow analysis or earnings multiples.
(11)
Absolute return investments are valued using the net asset value as reported by each fund's independent administrator. All absolute return investments have contractual redemption frequencies, ranging from monthly to annually, and redemption notice periods varying from 5 to 90 days.
(12)
Risk-factor allocation investments are valued using the net asset value as reported by each fund's independent administrator or fund manager. All funds have contractual redemptions frequencies ranging from daily to annually, and redemption notice periods varying from 5 to 60 days.
(13)
Other consists of operating assets of $120 million (2017 - $94 million) and liabilities of $13 million (2017 - $30 million) required to administer the Trusts' 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.
Schedule of obligations and funded status
Obligations and funded status for defined benefit pension and other postretirement benefit plans
 
 
Pensions
 
Other postretirement benefits
In millions
Year ended December 31,
2018

 
2017

 
2018

 
2017

Change in benefit obligation
 


 


 


 


Projected benefit obligation at beginning of year
$
18,025

 
$
17,366

 
$
261

 
$
270

Amendments
 
—

 
—

 
$
(6
)
 
—

Interest cost
 
568

 
540

 
9

 
8

Actuarial (gain) loss on projected benefit obligation (1)
(538
)
 
979

 
(10
)
 
3

Current service cost
 
170

 
130

 
2

 
2

Plan participants' contributions
 
63

 
56

 
—

 
—

Foreign currency changes
 
25

 
(21
)
 
8

 
(5
)
Benefit payments, settlements and transfers
(1,038
)
 
(1,025
)
 
(17
)
 
(17
)
Projected benefit obligation at the end of the year (2)
$
17,275

 
$
18,025

 
$
247

 
$
261

Component representing future salary increases
(266
)
 
(306
)
 
—

 
—

Accumulated benefit obligation at end of year
$
17,009

 
$
17,719

 
$
247

 
$
261

Change in plan assets
 
 
 
 
 
 
 
 
Fair value of plan assets at beginning of year
$
18,564

 
$
17,831

 
$
—

 
$
—

Employer contributions
 
70

 
96

 
—

 
—

Plan participants' contributions
 
63

 
56

 
—

 
—

Foreign currency changes
 
19

 
(15
)
 
—

 
—

Actual return on plan assets
 
(434
)
 
1,621

 
—

 
—

Benefit payments, settlements and transfers
(1,038
)
 
(1,025
)
 
—

 
—

Fair value of plan assets at end of year (2)
$
17,244

 
$
18,564

 
$
—

 
$
—

Funded status - Excess (deficiency) of fair value of plan assets
over projected benefit obligation at end of year
$
(31
)
 
$
539

 
$
(247
)
 
$
(261
)
(1)
Actuarial gains on the projected benefit obligation for the year ended December 31, 2018 mainly result from an increase of 26 basis points from the discount rate as at December 31, 2017. Actuarial losses on the projected benefit obligation for the year ended December 31, 2017 mainly result from a decrease of 30 basis points from the discount rate as at December 31, 2016.
(2)
For the CN Pension Plan, as at December 31, 2018, the projected benefit obligation was $16,004 million (2017 - $16,721 million) and the fair value of plan assets was $16,393 million (2017 - $17,654 million). The measurement date of all plans is December 31.
Amounts recognized in the Consolidated Balance Sheet
Amounts recognized in the Consolidated Balance Sheets
 
 
 
Pensions
 
Other postretirement benefits
In millions
December 31,
2018

 
2017

 
2018

 
2017

Noncurrent assets - Pension asset
$
446

 
$
994

 
$
—

 
$
—

Current liabilities (Note 10)
—

 
—

 
(17
)
 
(17
)
Noncurrent liabilities - Pension and other postretirement benefits
(477
)
 
(455
)
 
(230
)
 
(244
)
Total amount recognized
$
(31
)
 
$
539

 
$
(247
)
 
$
(261
)
Amounts recognized in Accumulated other comprehensive loss
Amounts recognized in Accumulated other comprehensive loss (Note 16)
 
 
 
Pensions
 
Other postretirement benefits
In millions
December 31,
2018

 
2017

 
2018

 
2017

Net actuarial gain (loss)
$
(3,887
)
 
$
(3,111
)
 
$
8

 
$
—

Prior service credit (cost)
$
(6
)
 
$
(9
)
 
$
4

 
$
(2
)
Information for the pension plans with an accumulated benefit obligation in excess of plan assets
Information for defined benefit pension plans with an accumulated benefit obligation in excess of plan assets
 
 
Pensions
In millions
December 31,
2018

 
2017

Accumulated benefit obligation (1)
 
$
714

 
$
601

Fair value of plan assets (1)
 
$
303

 
$
215


(1)
All of the Company's other postretirement benefit pension plans have an accumulated benefit obligation in excess of plan assets.
Information for the pension plans with a projected benefit obligation in excess of plan assets
Information for defined benefit pension plans with a projected benefit obligation in excess of plan assets
 
 
Pensions
In millions
December 31,
2018

 
2017

Projected benefit obligation
 
$
780

 
$
770

Fair value of plan assets
 
$
303

 
$
315
Components of net periodic benefit cost (income)
Components of net periodic benefit cost (income) for defined benefit pension and other postretirement benefit plans
 
 
Pensions
 
Other postretirement benefits
In millions
Year ended December 31,
2018

 
2017

 
2016

 
2018

 
2017

 
2016

Current service cost
$
170

 
$
130

 
$
124

 
$
2

 
$
2

 
$
2

Other components of net periodic benefit cost (income) (1)


 


 


 


 


 


Interest cost
568

 
540

 
543

 
9

 
8

 
8

Settlement loss
3

 
—

 
10

 
—

 
—

 
—

Expected return on plan assets
(1,083
)
 
(1,047
)
 
(1,018
)
 
—

 
—

 
—

Amortization of prior service cost
3

 
5

 
3

 
—

 
—

 
2

Amortization of net actuarial loss (gain)
200

 
182

 
177

 
(2
)
 
(3
)
 
(5
)
Total Other components of net periodic benefit cost (income) (1)
$
(309
)
 
$
(320
)
 
$
(285
)
 
$
7

 
$
5

 
$
5

Net periodic benefit cost (income)
$
(139
)
 
$
(190
)
 
$
(161
)
 
$
9

 
$
7

 
$
7


(1)
The Company adopted ASU 2017-07: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost in the first quarter of 2018 on a retrospective basis. Comparative figures on the Company's Consolidated Statements of Income have been adjusted to conform to the current presentation. See Note 2 - Recent accounting pronouncements for additional information.
Weighted-average assumptions used in accounting for pensions and other postretirement benefits
Weighted-average assumptions used in accounting for defined benefit pension and other postretirement benefit plans
 
 
 
Pensions
Other postretirement benefits
 
December 31,
2018

2017

2016

2018

2017

2016

To determine projected benefit obligation












Discount rate (1)
3.77
%
3.51
%
3.81
%
4.00
%
3.59
%
3.96
%
Rate of compensation increase (2)
2.75
%
2.75
%
2.75
%
2.75
%
2.75
%
2.75
%
To determine net periodic benefit cost (income)












Rate to determine current service cost (3)
3.68
%
4.11
%
4.24
%
3.83
%
4.43
%
4.59
%
Rate to determine interest cost (3)
3.15
%
3.15
%
3.27
%
3.23
%
3.29
%
3.35
%
Rate of compensation increase (2)
2.75
%
2.75
%
2.75
%
2.75
%
2.75
%
2.75
%
Expected return on plan assets (4)
7.00
%
7.00
%
7.00
%
N/A

N/A

N/A

(1)
The Company's discount rate assumption, which is set annually at the end of each year, is determined by management with the aid of third-party actuaries. 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. For the Canadian pension and other postretirement benefit plans, future expected benefit payments are discounted using spot rates based on a derived AA corporate bond yield curve for each maturity year.
(2)
The rate of compensation increase is determined by the Company based upon its long-term plans for such increases.
(3)
The Company uses the spot rate approach to measure current service cost and interest cost for all defined benefit pension and other postretirement benefit plans. Under the spot rate approach, individual spot discount rates along the same yield curve used in the determination of the projected benefit obligation are applied to the relevant projected cash flows at the relevant maturity.
(4)
The expected long-term rate of return is determined based on expected future performance for each asset class and is weighted based on the investment policy. For 2018, the Company used a long-term rate of return assumption of 7.00% on the market-related value of plan assets to compute net periodic benefit cost (income). 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. In 2019, the Company will maintain the expected long-term rate of return on plan assets at 7.00% to reflect management's current view of long-term investment returns.
Estimated future benefit payments
Expected future benefit payments
The following table provides the expected benefit payments for pensions and other postretirement benefits for the next five years and the subsequent five-year period:
In millions
Pensions

Other postretirement
benefits
 
2019
$
1,058

 
$
17

2020
$
1,055

 
$
17

2021
$
1,057

 
$
17

2022
$
1,054

 
$
16

2023
$
1,050

 
$
16

Years 2024 to 2028
$
5,149

 
$
72