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Pensions and Other Benefits (Tables)
 12 Months Ended
Dec. 31, 2017
Retirement Benefits [Abstract]  
Net Periodic Benefit Cost for DB Pension Plans and Other Benefits The elements of net periodic benefit cost for DB pension plans and other benefits recognized in the year include the following components:
 
Pensions
 
Other benefits
(in millions of Canadian dollars)
2017

 
2016

 
2015

 
2017

 
2016

 
2015

Current service cost (benefits earned by employees in the year)
$
103

 
$
106

 
$
126

 
$
12

 
$
11

 
$
12

Other components of net periodic benefit (recovery) cost:
 
 
 
 
 
 
 
 
 
 
 
Interest cost on benefit obligation
451

 
467

 
463

 
20

 
21

 
21

Expected return on fund assets
(893
)
 
(846
)
 
(816
)
 
—

 
—

 
—

Recognized net actuarial loss (gain)
153

 
190

 
265

 
(1
)
 
7

 
2

Amortization of prior service costs
(5
)
 
(7
)
 
(6
)
 
1

 
1

 
1

Total other components of net periodic benefit (recovery) cost
(294
)
 
(196
)
 
(94
)
 
20

 
29

 
24

Net periodic benefit (recovery) cost
$
(191
)
 
$
(90
)
 
$
32

 
$
32

 
$
40

 
$
36
Information About DB Pension Plans and Other Benefits Information about the Company’s DB pension plans and other benefits, in aggregate, is as follows:
 
Pensions

Other benefits
(in millions of Canadian dollars)
2017

2016


2017

2016

Change in projected benefit obligation:
 
 
 
 
 
Benefit obligation at January 1
$
11,399

$
11,194


$
510

$
513

Current service cost
103

106


12

11

Interest cost
451

467


20

21

Employee contributions
44

40


1

1

Benefits paid
(648
)
(645
)

(35
)
(31
)
Foreign currency changes
(15
)
(7
)

(3
)
—

Plan amendments and other
1

6


—

—

Actuarial loss (gain)
344

238


13

(5
)
Projected benefit obligation at December 31
$
11,679

$
11,399


$
518

$
510


 
Pensions

Other benefits
(in millions of Canadian dollars)
2017

2016


2017

2016

Change in fund assets:
 
 
 
 
 
Fair value of fund assets at January 1
$
12,196

$
12,300


$
5

$
6

Actual return on fund assets
1,183

461


(1
)
(1
)
Employer contributions
46

48


34

30

Employee contributions
44

40


1

1

Benefits paid
(648
)
(645
)

(35
)
(31
)
Foreign currency changes
(13
)
(8
)

—

—

Fair value of fund assets at December 31
$
12,808

$
12,196


$
4

$
5

Funded status – plan surplus (deficit)
$
1,129

$
797


$
(514
)
$
(505
)
Funding Status of Pension Plans
 
2017

2016
(in millions of Canadian dollars)
Pension
plans in
surplus

Pension
plans in
deficit


Pension
plans in
surplus

Pension
plans in
deficit

Projected benefit obligation at December 31
$
(11,174
)
$
(505
)

$
(10,902
)
$
(497
)
Fair value of fund assets at December 31
12,581

227


11,972

224

Funded Status
$
1,407

$
(278
)

$
1,070

$
(273
)
Amounts Recognized in the Company's Consolidated Balance Sheets Amounts recognized in the Company’s Consolidated Balance Sheets are as follows:
 
Pensions

Other benefits
(in millions of Canadian dollars)
2017

2016


2017

2016

Pension asset
$
1,407

$
1,070


$
—

$
—

Accounts payable and accrued liabilities
(10
)
(10
)

(33
)
(34
)
Pension and other benefit liabilities
(268
)
(263
)

(481
)
(471
)
Total amount recognized
$
1,129

$
797


$
(514
)
$
(505
)
Amounts Recognized in Accumulated Other Comprehensive Losses Amounts recognized in accumulated other comprehensive loss are as follows:
 
Pensions
 
Other benefits
(in millions of Canadian dollars)
2017

2016

 
2017

2016

Net actuarial loss:
 
 
 
 
 
Other than deferred investment gains
$
2,555

$
2,842

 
$
81

$
66

Deferred investment gains
(178
)
(366
)
 
—

—

Prior service cost
(2
)
(7
)
 
2

3

Deferred income tax
(676
)
(699
)
 
(21
)
(17
)
Total (Note 7)
$
1,699

$
1,770

 
$
62

$
52
Weighted-average Actuarial Assumptions Used Weighted-average actuarial assumptions used were approximately:
(percentages)
2017
 
2016
 
2015
 
Benefit obligation at December 31:
 
 
 
 
 
 
Discount rate
3.80
 
4.02
 
4.22
 
Projected future salary increases
2.75
 
2.75
 
3.00
 
Health care cost trend rate
7.00
(1) 
7.00
(1) 
7.00
(2) 
Benefit cost for year ended December 31:
 
 
 
 
 
 
Discount rate
4.02
 
4.22
 
4.09
 
Expected rate of return on fund assets
7.75
 
7.75
 
7.75
 
Projected future salary increases
2.75
 
3.00
 
3.00
 
Health care cost trend rate
7.00
(1) 
7.00
(2) 
7.00
(2) 
(1) The health care cost trend rate is assumed to be 7.00% in 2017 and 2018, and then decreasing by 0.50% per year to an ultimate rate of 5.00% per year in 2022 and thereafter.
(2) The health care cost trend rate was previously assumed to be 6.50% in 2017 (7.00% in 2016 and 2015), and then decreasing by 0.50% per year to an ultimate rate of 5.00% per year in 2020 and thereafter.
Pension Plan Asset Allocation and Current Weighted Average Policy Range The Company’s pension plan asset allocation, the current weighted average asset allocation targets and the current weighted average policy range for each major asset class, were as follows:
 
Current
asset
allocation
target
Current
policy
range
Percentage of plan assets
at December 31
Asset allocation (percentage)
2017
2016
Cash and cash equivalents
0.5
0 – 5
1.4
1.1
Fixed income
29.5
20 – 40
26.1
21.4
Public equity
46.0
35 – 55
53.3
53.8
Real estate and infrastructure
12.0
4 – 20
6.2
7.5
Absolute return
12.0
0 – 18
13.0
16.2
Total
100.0

100.0
100.0
Summary of Defined Benefit Pension Plan Assets at Fair Value The following is a summary of the assets of the Company’s DB pension plans at fair values at December 31, 2017 and 2016:
(in millions of Canadian dollars)
Quoted prices in
active markets
for identical assets (Level 1)

Significant other
observable inputs
(Level 2)

Significant
unobservable inputs
(Level 3)

Investments
measured at
NAV(1)

Total

December 31, 2017
 
 
 
 
 
Cash and cash equivalents
$
165

$
11

$
—

$
—

$
176

Fixed income
 
 
 
 
 
• Government bonds(2)
—

2,087

—

—

2,087

• Corporate bonds(2)
—

1,215

—

—

1,215

• Mortgages(3)
—

45

—

—

45

Public equities
 
 
 
 

• Canada
1,467

62

—

—

1,529

• U.S. and international
5,254

42

—

—

5,296

Real estate(4)
—

—

—

622

622

Derivative assets(5)
—

—

—

—

—

Absolute return(6)
 
 
 
 

• Funds of hedge funds
—

—

—

681

681

• Multi-strategy funds
—

—

—

515

515

• Credit funds
—

—

—

252

252

• Equity funds
—

—

—

214

214

Infrastructure(7)
—

—

—

176

176

 
$
6,886

$
3,462

$
—

$
2,460

$
12,808

December 31, 2016
 
 
 
 
 
Cash and cash equivalents
$
121

$
11

$
—

$
—

$
132

Fixed income
 
 
 
 
 
• Government bonds(2)
—

1,357

—

—

1,357

• Corporate bonds(2)
—

1,186

—

—

1,186

• Mortgages(3)
—

71

—

—

71

Public equities
 
 
 
 

• Canada
1,480

57

—

—

1,537

• U.S. and international
4,985

36

—

—

5,021

Real estate(4)
—

—

437

188

625

Derivative assets(5)
—

7

—

—

7

Absolute return(6)
 
 
 
 
 
• Funds of hedge funds
—

—

—

668

668

• Multi-strategy funds
—

—

—

502

502

• Credit funds
—

—

—

505

505

• Equity funds
—

—

—

300

300

Infrastructure(7)
—

—

—

285

285

 
$
6,586

$
2,725

$
437

$
2,448

$
12,196

(1) Investments measured at net asset value ("NAV"):
Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient. These investments have not been classified in the fair value hierarchy.
(2) Government & Corporate Bonds:
Fair values for bonds are based on market prices supplied by independent sources as of the last trading day.
(3) Mortgages:
The fair value of mortgages of $45 million (2016 – $71 million) is based on current market yields of financial instruments of similar maturity, coupon and risk factors.
(4) Real estate:
Real estate fund values of $622 million (2016 – $188 million) are based on the NAV of the funds that invest directly in real estate investments. The fair values of the investments have been estimated using the capital accounts representing the plan’s ownership interest in the funds. Of the total, $542 million (2016 – $134 million) is subject to redemption frequencies ranging from monthly to annually and a redemption notice period
of 90 days. The remaining $80 million (2016 – $54 million) is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying real estate investments. There are $53 million of unfunded commitments for real estate investments as at December 31, 2017 (2016 – $81 million).
The fair value of real estate investments of $nil (2016 – $437 million) is based on property appraisals which use a number of approaches that typically include a discounted cash flow analysis, a direct capitalization income method and/or a direct comparison approach. Appraisals of real estate investments are generally performed semi-annually by qualified external accredited appraisers.
(5) Derivatives:
The Company’s pension funds may utilize the following derivative instruments: equity futures to replicate equity index returns (Level 2); currency forwards to partially hedge foreign currency exposures (Level 2); bond forwards to reduce asset/liability interest rate risk exposures (Level 2); interest rate swaps to manage duration and interest rate risk (Level 2); credit default swaps to manage credit risk (Level 2); and options to manage interest rate risk and volatility (Level 2). There are currency forwards with a notional value of $nil (2016 – $937 million) and a fair value of $nil (2016 – $7 million) as at December 31, 2017.
(6) Absolute return:
The fair value of absolute return fund investments of $1,662 million (2016 – $1,975 million) is based on the NAV reported by the fund administrators. The funds have different redemption policies and periods.
-
Funds of hedge funds invest in a portfolio of hedge funds that allocate capital across a broad array of funds and/or investment managers, with monthly redemptions upon 95 days' notice.
-
Multi-strategy funds include funds that invest in broadly diversified portfolios of equity, fixed income and derivative instruments with quarterly redemptions upon 60 days' notice.
-
Credit funds invest in an array of fixed income securities with quarterly redemptions upon 60 days' notice.
-
Equity funds invest primarily in U.S. and global equity securities. Redemptions range from quarterly upon 60 days' notice to triennially upon 45 days' notice.
(7) Infrastructure:
Infrastructure fund values of $176 million (2016 – $285 million) are based on the NAV of the funds that invest directly in infrastructure investments. The fair values of the investments have been estimated using the capital accounts representing the plans' ownership interest in the funds. The investment in each fund is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying infrastructure investments. It was estimated that the investments in these funds will be liquidated over the weighted-average period of approximately one year.
Summary of Defined Benefit Pension Plan Assets Measured at FV Using Unobservable Inputs During 2016 and 2017 the portion of the assets of the Company’s DB pension plans measured at fair value using unobservable inputs (Level 3) changed as follows:
(in millions of Canadian dollars)
Real Estate

As at January 1, 2016
$
451

Disbursements
(36
)
Net realized gains
24

Decrease in net unrealized gains
(2
)
As at December 31, 2016
$
437

Disbursements
(43
)
Net realized gains
7

Decrease in net unrealized gains
(7
)
Net transfers (out of) Level 3
(394
)
As at December 31, 2017
$
—
Company Contributions to Pension Plans he Company contributed the following to its different pension plans:
(in millions of Canadian dollars)
2017

2016

2015

Canadian registered and U.S. qualified DB pension plans
$
33

$
36

$
69

Canadian non-registered supplemental pension plan
13

12

12

DC plans
9

9

9

Total Company pension contribution
$
55

$
57

$
90
Estimated Future DB Pension and Other Post-retirement Benefit Payments The estimated future defined benefit pension and other benefit payments to be paid by the plans for each of the next five years and the subsequent five-year period are as follows:
(in millions of Canadian dollars)
Pensions

Other benefits

2018
$
609

$
33

2019
614

31

2020
620

31

2021
625

31

2022
631

30

2023 – 2027
3,220

146